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Buy Locally? Big-Box Stores and Time-Inconsistent Preferences

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  • Novak, Lindsey

Abstract

The widespread closure of Mom-and-Pop shops, or small, locally owned stores, in the United States and elsewhere is a well-recognized phenomenon. These closures are generally met with dissatisfaction from the local community. These stores, however, often close due to a lack of patronage on the part of the same consumers who are upset by their closure. This behavior and subsequent disappointment are puzzling. I show that this phenomenon can be explained using a hyperbolic discounting, or time-inconsistency, framework. I develop a theoretical model to show that time-inconsistent consumers are less likely to patronize local businesses than time-consistent consumers. The sophistication effect, however, makes consumers more likely to shop at the local store than if they were naive. Further, I show that local stores are more likely to close in a community with a larger proportion of naive time-inconsistent consumers and that these closures cause a loss in welfare.

Suggested Citation

  • Novak, Lindsey, 2016. "Buy Locally? Big-Box Stores and Time-Inconsistent Preferences," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235830, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:235830
    DOI: 10.22004/ag.econ.235830
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    References listed on IDEAS

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    Keywords

    Agricultural and Food Policy; Consumer/Household Economics; Institutional and Behavioral Economics;
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