# Browsing by Subject "Consumption (Economics)--Mathematical models"

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Item The dynamics of individual and household behavior(2002-05) Lich-Tyler, Stephen Woolfley; Hamermesh, Daniel S.Show more This dissertation uses dynamic models of labor supply and consumption to study the behavior of individuals and households. The first chapter examines the impact of income and wage volatility on life-cycle labor supply patterns. With uncertainty in the model, labor supply dynamics should depend on wage changes and rates of time preference (as in the deterministic case); additionally, on the amount of uncertainty facing the individual, current assets, risk-aversion, time to retirement, and a “prudence” motive. I estimate this model and standard approaches using data on male household heads in the Panel Study of Income Dynamics (PSID). Both techniques yield similar estimates of the wage elasticity, but the standard approach substantially overstates patience. Wage volatility and assets both affect labor supply dynamics, as predicted by my model. The second chapter develops ways of studying the dynamics of household decision-making. The existing literature on joint decision-making examines static bargaining problems. I find several ways to model the multi-period allocation problem: as a repeated static game, as a multi-period game with full commitment, and as a multi-period game without commitment. These models imply different behavior. I propose a test for each intertemporal procedure. Using data on household expenditures in the PSID, I find that I can reject that a single model describes behavior of all households. I allow the data to sort households into the model that best describes their behavior. Children, divorce laws, and length of marriage are determinants of the intertemporal procedure. The final chapter examines consumption dynamics under uncertainty. Controlling for volatility in prices, income, and the interest rate, I distinguish between responses to anticipated and unanticipated income. Consistent with the stochastic life-cycle model, there is no relationship between changes in consumption and anticipated future income; however, consumption responds to unanticipated income. In contrast to the predictions of the model, consumption is roughly twice as responsive to anticipated price changes as to unanticipated price changes.Show more Item Three essays on empirical studies of consumer behavior(2007) Liu, An-Shih, 1977-; Hendricks, Kenneth; Watson, Randal B.Show more This dissertation is an empirical study of demand and supply in differentiated products markets using supermarket scanner data on two particular product categories - canned tuna and hot-breakfast cereals. First, I study the impact of retailers' price promotions on consumer demand and retailer profits in the canned-tuna product category. Since canned tuna is storable, I examine whether consumers stock up during sales. The results suggest that only a limited amount of stockpiling exists in this product category. Since inventory is not very important, consumer demand is thus modeled by a static demand model with a random-coefficients-nested-logit specification, which is estimated by the Markov Chain Monte Carlo method. The unit-sales decomposition results show that on average 36% of the demand response to price promotions comes from brand-switching, so market expansion effects due to consumers switching from the outside good and to higher quantities usually dominate the brand-switching effect. Using the demand estimates, I compute optimal retail prices assuming that stores are local monopolists and choose prices to maximize static category-level profits. I find that regular prices at "high-low" stores are typically at or slightly below the optimal prices, but that regular prices at "every-day-low-price" stores are substantially below the optimal prices. These results suggest that retail price levels and price promotions are more likely related to local market conditions such as retail competition. In addition, I study the effects of store-brand (SB) entry on the demand elasticities of incumbent national brands (NB), consumers' substitution patterns for national and store brands, and the implications for consumer welfare in the hot-breakfast-cereals product category. A random-coefficients model of consumer demand is estimated by the generalized-method-of-moments approach. The empirical findings are: (1) After the entry of SB's, demand becomes more elastic for non-imitated NB's, and either more elastic or shows no change for imitated NB's; (2) in general, substitution patterns for NB's and SB's are asymmetric, i.e., when the prices of their favorite products increase, most NB buyers tend to substitute to other NB products, but SB buyers will substitute to the corresponding imitated NB's; (3) the increase in consumer surplus due to SB entry is trivial for an individual consumer, but the aggregate benefit could be quite substantial.Show more