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Habits and Envy: What Drives the Consumption Behavior of U.S. Households? Evidence from PSID, 1999-2009

Author

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  • Kai D. Schmid
  • Moritz Drechsel-Grau

Abstract

In this paper we estimate the relevance of habits versus interpersonal comparisons for the consumption behavior of U.S. households. We exploit information from the recently released consumption expenditure data of the Panel Study of Income Dynamics (PSID) covering the time span from 1999 to 2009. We find that both habits, measured as lagged consumption, and envy motives, measured as reactions of consumption to consumption changes of households that are perceived to be richer, matter substantially. Hence, household consumption is not only determined by habit persistence but also by interpersonal comparisons. Most importantly, our estimations reveal that envy motives might play a much more prominent role for households' consumption choices than habits do.

Suggested Citation

  • Kai D. Schmid & Moritz Drechsel-Grau, 2013. "Habits and Envy: What Drives the Consumption Behavior of U.S. Households? Evidence from PSID, 1999-2009," IMK Working Paper 123-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:123-2013
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    References listed on IDEAS

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    Cited by:

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    2. Schulz, Jan & Mayerhoffer, Daniel M., 2021. "A network approach to consumption," BERG Working Paper Series 173, Bamberg University, Bamberg Economic Research Group.

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    More about this item

    Keywords

    Household Consumption; Reference Consumption; Habits; Relative Income Hypothesis; Difference GMM; PSID;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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