Habits in Consumption, Transactions Learning and Economic Growth

Trinity College Department of Economics Working Paper No. TEP 2005/5

21 Pages Posted: 12 Mar 2008

See all articles by Constantin Gurdgiev

Constantin Gurdgiev

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

Date Written: April 2005

Abstract

This paper presents a model of endogenous growth in the presence of habit formation in consumption. We argue that in addition to the traditional disutility effects of habitual consumption, the past history of consumption represents a past record of transactions as well. As a result, the knowledge acquired in the process of past consumption leads to efficiency gains in allocating time to other activities. In particular, the investment technology in broad household capital can be seen as benefiting from the habitual consumption knowledge, while being subject to the costly new consumption pathways learning. These learning-by-consuming effects imply a faster speed of convergence to the steady state growth rate in consumption and a higher steady state ratio of capital to habits. Alternatively our model allows for the case where new consumption is associated with the accumulation of broad capital, as is consistent with the case where consumption goods can also be used in production. In this case convergence to steady state growth rate is slower.

Keywords: habits, endogenous growth, transactions cost, capital

JEL Classification: D13, E21, E22, O40

Suggested Citation

Gurdgiev, Constantin, Habits in Consumption, Transactions Learning and Economic Growth (April 2005). Trinity College Department of Economics Working Paper No. TEP 2005/5. Available at SSRN: https://ssrn.com/abstract=1105042 or http://dx.doi.org/10.2139/ssrn.1105042

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

Register to save articles to
your library

Register

Paper statistics

Downloads
104
rank
242,135
Abstract Views
610
PlumX