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This paper studies the concavity of the consumption function of a habit-forming consumer with convex absolute risk tolerance. Habit formation is incorporated into a finite-horizon consumption-saving model of Carroll and Kimball (1996). I derive a condition under which the consumption function is...
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This paper studies the concavity of the consumption function of a habit-forming consumer with convex absolute risk tolerance. I show that the consumer's consumption function can be convex when young and becomes concave when old, contrary to the results of a standard consumptionsaving model with...
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