A Life-Cycle Model of Habitual Dependence in Leisure Demand

Trinity College, Department of Economics Working Paper

31 Pages Posted: 11 Mar 2008

See all articles by Constantin Gurdgiev

Constantin Gurdgiev

Trinity College, Dublin; Middlebury Institute of International Studies at Monterey (MIIS)

Date Written: June 2004

Abstract

This model proposes an extension of the traditional habits in consumption literature to encompass the time-persistence of leisure demand. The model establishes a link between the habitual leisure and income effects, which amplifies the traditional effects on savings, investment and consumption distribution across periods. The disutility of habits stock varies with the strength of habit formation. At the same time, the wage elasticity of demand for leisure and the income elasticity of consumption are shown to be functions of the strength of habit formation. The model concludes that while habitual leisure captures the effects of persistence in leisure, it fails to reflect the time dependency properties of consumption. This warrants a new approach to modelling consumption and leisure demand that includes the possibility for time dependent and weakly inseparable consumption and leisure.

Keywords: Habits, Consumption, Leisure, Labor Supply

JEL Classification: E21, J22

Suggested Citation

Gurdgiev, Constantin, A Life-Cycle Model of Habitual Dependence in Leisure Demand (June 2004). Trinity College, Department of Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=1105029 or http://dx.doi.org/10.2139/ssrn.1105029

Constantin Gurdgiev (Contact Author)

Trinity College, Dublin ( email )

Trinity College
Dublin 2

Middlebury Institute of International Studies at Monterey (MIIS) ( email )

460 Pierce St
Monterey, CA 93940
United States

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