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Consumption Patterns over Pay Periods

Author

Listed:
  • Clare Kelly

    (University of Warwick, Department of Economics)

  • Gauthier Lanot

    (Keele University, Department of Economics)

Abstract
This paper establishes a theoretical framework to characterise the optimal behaviour of individuals who receive income periodically but make consumption decisions on a more frequent basis. The model incorporates price uncertainty and imperfect credit markets. The simulated numerical solution to this model shows that weekly consumption functions are ordered such that the functions within the payment period are highest in the first and the last week of the payment cycle for all wealth levels. Using weekly expenditure data from the FES we estimate the coefficient of relative risk aversion (point estimates are between 2 and 7) and the extent of measurement error in the data (which accounts for approximately 50% of the variance in the data).

Suggested Citation

  • Clare Kelly & Gauthier Lanot, 2002. "Consumption Patterns over Pay Periods," Keele Economics Research Papers KERP 2002/14, Centre for Economic Research, Keele University.
    • Handle: RePEc:kee:kerpuk:2002/14
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0214.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Clare Kelly & Gauthier Lanot, 2003. "Analytical Results for a Model of Periodic Consumption," Keele Economics Research Papers KERP 2003/01, Centre for Economic Research, Keele University.
    2. Emre Ozdenoren & Stephen W. Salant & Dan Silverman, 2012. "Willpower And The Optimal Control Of Visceral Urges," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 342-368, April.

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    More about this item

    Keywords

    Consumption; liquidity constraints; uncertainty; credit cards;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • 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

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