Goods and Needs: A Satiation Approach

58 Pages Posted: 26 Mar 2021

See all articles by Manel Baucells

Manel Baucells

University of Virginia - Darden School of Business

Lin Zhao

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science; Chinese Academy of Sciences (CAS) - University of Chinese Academy of Sciences

Date Written: March 25, 2021

Abstract

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

Baucells, Manel and Zhao, Lin, Goods and Needs: A Satiation Approach (March 25, 2021). Darden Business School Working Paper No. 3811976, Available at SSRN: https://ssrn.com/abstract=3811976 or http://dx.doi.org/10.2139/ssrn.3811976

Manel Baucells (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Lin Zhao

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Zhongguancun East Road 55
Beijing, 100190
China

Chinese Academy of Sciences (CAS) - University of Chinese Academy of Sciences ( email )

Zhongguancun Road 80
Beijing, Beijing 100190
China

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