Welfare implications of the interaction between habits and consumption externalities

Jaime Alonso-Carrera, Jordi Cabalié, Xavier Raurich

Research output: Contribution to journalArticleResearchpeer-review

20 Citations (Scopus)

Abstract

We analyze the welfare properties of the equilibrium path of a growth model where both habits and consumption externalities affect the utility of consumers. Our analysis highlights the crucial role played by complementarities between externalities and habits in order to generate an inefficient dynamic equilibrium. In particular, we show that the competitive equilibrium is inefficient when consumption externalities and habit-adjusted consumption are not perfect substitutes.
Original languageEnglish
Pages (from-to)557-571
JournalInternational Economic Review
Volume47
DOIs
Publication statusPublished - 1 May 2006

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