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The Relative Importance of Time and Money for Consumer Behavior and Prosperity

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  • Fellner, Wolfgang
  • Seidl, Roman

Abstract

We develop a consumption model to analyze the relative importance of time and money for consumer behavior and prosperity. The model is characterized by three situations a consumer may face. Equilibrium conditions are different in each of those situations. At equilibrium A only the time constraint is binding. The appropriate situation is called relative time scarcity. At equilibrium B, relative satiation, the consumer's income constraint is binding at the optimal allocation of time. At equilibrium C, consumers deviate from their optimal allocation of time because of the income constraint. Those consumers face relative money scarcity. We analyze behavioral reactions to changes in prices, disposable income and available time in each of those three situations. It turns out that substitution effects only exist in situations of relative money scarcity - the only situation dealt with in ordinary (i.e. timeless) consumer theory. The absence of substitution effects in situations of relative time scarcity and relative satiation leads us to the conclusion, that the impact of changes in relative prices on consumer behavior is much less important than usually assumed. Another interesting result is that increases in disposable income do not necessarily lead to a gain in prosperity. The effects of changes in disposable income and time availability on prosperity depend on the situation a consumer faces.(author's abstract)

Suggested Citation

  • Fellner, Wolfgang & Seidl, Roman, 2012. "The Relative Importance of Time and Money for Consumer Behavior and Prosperity," SRE-Discussion Papers 2012/08, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus009:3681
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