Abstract
This paper presents an infinite-horizon model of consumer behavior with flexible preference over durable goods to show that frequency of demand switching is not constant even if the flexibility of preference is constant. The main result of this model is that more frequent demand fluctuations are brought about by increase in wealth or income. Our model uses the stochastic dynamic programming method combined with expected utility theory. It is also shown, however, that qualitatively similar results can be obtained even when the assumption of extremely rational behavior is dropped.
Original language | English |
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Pages (from-to) | 173-192 |
Number of pages | 20 |
Journal | ECONOMIC AND ENVIRONMENTAL RISK AND UNCERTAINTY |
Volume | 35 |
Publication status | Published - 1997 |