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Habits and heterogeneity in demands: a panel data analysis

✍ Scribed by Martin Browning; M. Dolores Collado

Publisher: John Wiley and Sons
Year: 2007
Tongue: English
Weight: 133 KB
Volume: 22
Category: Article
ISSN: 0883-7252
DOI: 10.1002/jae.952

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✦ Synopsis

Abstract

We examine demand behaviour for intertemporal dependencies, using Spanish panel data. We present evidence that there is both state dependence and correlated heterogeneity in demand behaviour. Our specific findings are that food outside the home, alcohol and tobacco are habit forming, whereas clothing and small durables exhibit durability. We conclude that demand analyses using cross‐section data that ignore these effects may be seriously biased. On the other hand, the degree of intertemporal dependence is not sufficiently strong to make composite ‘consumption’ significantly habit forming, as has been suggested in some recent analyses. Copyright © 2007 John Wiley & Sons, Ltd.

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