On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods, Second Version

71 Pages Posted: 22 Jan 2015

See all articles by Rong Hai

Rong Hai

University of Miami - School of Business Administration - Department of Economics

Dirk Krueger

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Andrew Postlewaite

University of Pennsylvania - Department of Economics

Multiple version iconThere are 5 versions of this paper

Date Written: January 14, 2015

Abstract

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

Hai, Rong and Krueger, Dirk and Postlewaite, Andrew, On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods, Second Version (January 14, 2015). PIER Working Paper No. 15-004, Becker Friedman Institute for Research in Economics Working Paper No. 2553231, Available at SSRN: https://ssrn.com/abstract=2553231 or http://dx.doi.org/10.2139/ssrn.2553231

Rong Hai

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

HOME PAGE: http://https://sites.google.com/site/ronghaiecon/

Dirk Krueger

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-6691 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~dkrueger/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Andrew Postlewaite (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-7350 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~apostlew

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