Welfare Implications of the Interaction between Habits and Consumption Externalities

We analyze the welfare properties of the equilibrium path of a growth model where both habits and consumption externalities affect the utility of consumers. Our analysis highlights the crucial role played by complementarities between externalities and habits in order to generate an inefficient dynamic equilibrium. In particular, we show that the competitive equilibrium is inefficient when consumption externalities and habit adjusted consumption are not perfect substitutes.

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Year of publication:	2004-04
Authors:	Alonso-Carrera, Jaime ; Caballé, Jordi ; Raurich, Xavier
Institutions:	Barcelona Graduate School of Economics (Barcelona GSE)
Subject:	Habit formation \| consumption externalities

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Extent:	application/pdf
Series:	Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 125
Classification:	D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving ; O40 - Economic Growth and Aggregate Productivity. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010547150