TY - JOUR
T1 - Intertemporal two-stage budgeting
T2 - implications for consumer demands and consumption
AU - Kim, H. Youn
AU - McLaren, Keith R.
N1 - Publisher Copyright:
© 2024
PY - 2024/3
Y1 - 2024/3
N2 - Consumer demands and consumption, though seemingly disjoint, are inextricably linked together via intertemporal two-stage budgeting, and cannot be separated. This paper elucidates this budgeting procedure with an illustration using the Linear Expenditure System, and evaluates the traditional analysis of consumer behavior that treats them as independent. We find that the dichotomous treatment of consumption expenditure and relative commodity prices in the traditional analysis creates a bias in the estimation of consumer demands and consumption. We argue that a proper understanding of consumer behavior entails an integration of consumer demands and consumption within a unifying framework, which can be achieved by utilizing the intertemporal two-stage budgeting procedure.
AB - Consumer demands and consumption, though seemingly disjoint, are inextricably linked together via intertemporal two-stage budgeting, and cannot be separated. This paper elucidates this budgeting procedure with an illustration using the Linear Expenditure System, and evaluates the traditional analysis of consumer behavior that treats them as independent. We find that the dichotomous treatment of consumption expenditure and relative commodity prices in the traditional analysis creates a bias in the estimation of consumer demands and consumption. We argue that a proper understanding of consumer behavior entails an integration of consumer demands and consumption within a unifying framework, which can be achieved by utilizing the intertemporal two-stage budgeting procedure.
KW - CRRA utility
KW - Homothetic preferences
KW - Indirect utility function
KW - Intertemporal optimization
KW - Intertemporal substitution
UR - http://www.scopus.com/inward/record.url?scp=85182999169&partnerID=8YFLogxK
U2 - 10.1016/j.rie.2024.01.007
DO - 10.1016/j.rie.2024.01.007
M3 - Article
AN - SCOPUS:85182999169
SN - 1090-9443
VL - 78
SP - 25
EP - 36
JO - Research in Economics
JF - Research in Economics
IS - 1
ER -