Goods and Needs: A Satiation Approach
58 Pages Posted: 26 Mar 2021
Date Written: March 25, 2021
This paper develops a continuous-time satiation preference with multiple needs and multiple goods. Goods meet different kinds of needs and the degree to which needs are met determines the utility. We derive closed-form solutions to the optimal consumption problems with a class of tractable felicity functions. Depending on the satiation interdependence across needs, the decrease in the satiation effect for one need can either postpone or accelerate the intake of other needs, can either increase, decrease or impose no impact on the allocation to this need, and can either increase or decrease the optimal utility level. When goods contribute to many needs, the optimal utility level is determined by the implied prices of needs. When time discount factor is small, the optimal utility level increases as the consumption horizon becomes longer.
Keywords: Satiation, Complements, Substitutes
JEL Classification: D01, D11
Suggested Citation: Suggested Citation