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I’LL NEVER FORGET MY FIRST CIGARETTE: A REVEALED PREFERENCE ANALYSIS OF THE “HABITS AS DURABLES” MODEL *
Author(s) -
Demuynck Thomas,
Verriest Ewout
Publication year - 2013
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12012
Subject(s) - consumption (sociology) , preference , revealed preference , time preference , econometrics , economics , set (abstract data type) , function (biology) , consumption function , computer science , mathematical economics , production (economics) , microeconomics , social science , evolutionary biology , sociology , programming language , biology
We provide a revealed preference analysis of the “habits as durables” model. This approach avoids the need to impose a functional form on the underlying utility function. We show that our characterization is testable by means of linear programming methods, and we demonstrate its practical usefulness by means of an application to cigarette consumption using a Spanish household consumption data set. We find that the “habits as durables” model has better empirical fit in terms of predictive success compared to the “short memory habits” and life cycle models.