CONSUMPTION PATTERNS OVER PAY PERIODS

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 1.2 and 7) and the extent of measurement error in the data (which accounts for approximately 60% of the variance in the data).


Issue Date:
Nov 11 2002
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/269469
Language:
English
Total Pages:
42
JEL Codes:
D11; D12; D91




 Record created 2018-03-09, last modified 2020-10-28

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