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I’LL NEVER FORGET MY FIRST CIGARETTE: A REVEALED PREFERENCE ANALYSIS OF THE “HABITS AS DURABLES” MODEL

Authors

  • Thomas Demuynck,

    1. K U Leuven Kulak, Belgium
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  • Ewout Verriest

    1. K U Leuven Kulak, Belgium
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    • We thank Ian Crawford for generously providing us with the data of the Encuesta Continua de Presupuestos Familiares (ECPF), which we use in our empirical study. We are grateful to Laurens Cherchye, the editor Hanming Fang, and two anonymous referees for helpful comments and suggestions, which substantially improved the article. We also like to thank the participants at the 10th journées Louis–André Gérard–Varet at Marseilles (2011) and the SED Annual Meeting at Ghent (2011) for useful discussion. Thomas Demuynck gratefully acknowledges the Fund for Scientific Research Flanders (FWO–Vlaanderen) for his postdoctoral fellowship. Ewout Verriest gratefully acknowledges the Fund for Scientific Research Flanders (FWO–Vlaanderen) for financial support. Please address correspondence to: Ewout Verriest, Department of Faculty of Business & Economics, University of Leuven, Desk C712 - E. Sabbelaan 53, Kortrijk, West-Vlaanderen 8500, Belgium (BE). E-mail: ewout.verriest@kuleuven-kortrijk.be


  • Manuscript received December 2011; revised March 2012.

Abstract

We provide a revealed preference analysis of the “habits as durables” model. This approach avoids the need to impose a functional form on the underlying utility function. We show that our characterization is testable by means of linear programming methods, and we demonstrate its practical usefulness by means of an application to cigarette consumption using a Spanish household consumption data set. We find that the “habits as durables” model has better empirical fit in terms of predictive success compared to the “short memory habits” and life cycle models.

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