Optimal consumption choice with intolerance for declining standard of living

Frank Riedel

Duesenberry introduced the notion of a ratchet investor who does not tolerate any decline in her consumption rate. We connect the demand behavior of such an agent to the behavior of standard time-additive agents. A ratchet investor demands the running maximum of the optimal plan a conventional time-additive investor with lower initial wealth would choose. -- Intertemporal consumption choice ; Habit formation ; Non-time separable utility

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Year of publication:	2007
Other Persons:	Riedel, Frank (contributor)
Publisher:	Bielefeld : Inst. of Mathematical Economics, IMW
Subject:	Konsumentenverhalten \| Consumer behaviour \| Privater Konsum \| Private consumption \| Intertemporale Allokation \| Intertemporal allocation \| Lebensstandard \| Standard of living \| Nachfragetheorie des Haushalts \| Consumer demand theory