On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods, Second Version
71 Pages Posted: 22 Jan 2015
Date Written: January 14, 2015
We propose a new category of consumption goods, memorable goods, that generate a flow of utility after consumption. We analyze an otherwise standard consumption model that distinguishes memorable goods from other nondurable goods. Consumers optimally choose lumpy consumption of memorable goods. We empirically document differences between levels and volatilities of memorable and other goods expenditures. Memorable goods expenditures are about twice durable goods expenditures and half the volatility. The welfare cost of consumption fluctuations driven by income shocks are overstated if memorable goods are not accounted for and estimates of excess sensitivity of consumption might be due to memorable goods.
Keywords: Memorable Goods, Consumption Volatility, Welfare Cost
JEL Classification: D91, E21
Suggested Citation: Suggested Citation