Habit formation and long-run utility functions |
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Authors: | Robert A Pollak |
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Affiliation: | Department of Economics, University of Pennsylvania, Philadelphia, Pennsylvania 19174 USA |
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Abstract: | This paper extends the work on habit formation of Pollak [Habit formation and dynamic demand functions. J. Polit. Econ. (1970)] and provides a critical counterexample to a conjecture of von Weizsäcker [Notes on endogenous changes of tastes, J. Econ. Theory (1971)] concerning the existence of a “long-run utility function.“ A linear specification of habit formation is applied to a general system of demand functions with linear Engel curves. It is shown that there exists a utility function which rationalizes the long-run demand functions if and only if they are the steady-state solution to a system of short-run demand functions generated by an additive utility function. |
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