Envy and Habits: Panel Data Estimates of Interdependent Preferences

27 Pages Posted: 6 Jul 2016

See all articles by Francisco Alvarez-Cuadrado

Francisco Alvarez-Cuadrado

McGill University - Department of Economics

Jose Maria Casado

Banco de España

J. Maria Labeaga Azcona

Universidad Nacional de Educacion a Distancia (UNED) - Faculty of Economics

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Date Written: August 2016

Abstract

We estimate the importance of preference interdependence from consumption choices. Our strategy follows the literature that tests the constraints imposed by optimality on the evolution of individual consumption. The introduction of habits and envy places additional restrictions on the evolution of the optimal consumption path. We use a unique data set to test these restrictions. Our estimates suggest that, if one defines utility over consumption services, a large fraction of these services is relative, with one third of the weight placed in the consumption of the reference group and another third placed in the agent's past consumption.

Suggested Citation

Alvarez-Cuadrado, Francisco and Casado, Jose Maria and Labeaga Azcona, José Maria, Envy and Habits: Panel Data Estimates of Interdependent Preferences (August 2016). Oxford Bulletin of Economics and Statistics, Vol. 78, Issue 4, pp. 443-469, 2016, Available at SSRN: https://ssrn.com/abstract=2803657 or http://dx.doi.org/10.1111/obes.12111

Francisco Alvarez-Cuadrado (Contact Author)

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada

Jose Maria Casado

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

José Maria Labeaga Azcona

Universidad Nacional de Educacion a Distancia (UNED) - Faculty of Economics ( email )

Calle Senda del Rey, 11
28040 Madrid
Spain
+34 91 398 7811 (Phone)
+34 91 398 6339 (Fax)

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