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Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations

Author

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  • Kapteyn, A.

    (Tilburg University, Center For Economic Research)

  • Kleinjans, K.
  • van Soest, A.H.O.

    (Tilburg University, Center For Economic Research)

Abstract

Euler equation estimation of intertemporal consumption models imposes heavy demands on data and identifiability conditions. For example, one typically needs panel data on consumption, assumptions on expectations, and a parameterization of preferences. The authors aim at reducing some of these requirements, by using additional information on respondents’ preferences and expectations. The results suggest that individually measured welfare functions and expectations have predictive power for the variation in consumption across households. Furthermore, estimates of the intertemporal elasticity of substitution based on the estimated welfare functions are plausible and of a similar order of magnitude as other estimates found in the literature.
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Suggested Citation

  • Kapteyn, A. & Kleinjans, K. & van Soest, A.H.O., 2008. "Intertemporal Consumption with Directly Measured Welfare Functions and Subjective Expectations," Discussion Paper 2008-85, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:29e581de-6037-463c-b441-796318273989
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    References listed on IDEAS

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    Cited by:

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    2. Svavarsdottir, Gudrun & Clark, Andrew E. & Stefansson, Gunnar & Asgeirsdottir, Tinna Laufey, 2024. "Where does money matter more?," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 350-365.
    3. van Rooij, Maarten & Teppa, Federica, 2014. "Personal traits and individual choices: Taking action in economic and non-economic decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 100(C), pages 33-43.
    4. Maurizio Bovi, 2014. "Shocks and the Expectations Formation Process. A Tale of Two Expectations," Natural Field Experiments 00390, The Field Experiments Website.
    5. Binswanger, Johannes & Salm, Martin, 2013. "Does Everyone Use Probabilities? Intuitive and Rational Decisions about Stockholding," IZA Discussion Papers 7265, Institute of Labor Economics (IZA).
    6. Michele Limosani & Emanuele Millemaci, 2014. "Precautionary savings of agents with heterogeneous risk aversion," Applied Economics, Taylor & Francis Journals, vol. 46(20), pages 2342-2361, July.
    7. Maurizio Bovi, 2016. "The tale of two expectations," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(6), pages 2677-2705, November.

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    More about this item

    Keywords

    Expectations; Consumption; Euler equations;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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