Hypothetical Intertemporal Consumption Choices

Published in: The Economic Journal, v. 113, no. 486, Mar. 2003, p. C140-C152

Posted on RAND.org on January 01, 2003

by Arie Kapteyn, Federica Teppa

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The paper extends and replicates part of the analysis by Barsky et al. (1997), which exploits hypothetical choices among different consumption streams to infer intertemporal substitution elasticities and rates of time preference. The authors use a new and much larger dataset than Barsky et al. Furthermore, the authors estimate structural models of intertemporal choice, while parameterising the parameters of interest as a function of relevant individual characteristics. The authors also consider behavioural extensions, like habit formation. Models with habit formation appear to be superior to models with intertemporally additive preferences.

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