TY  - UNPD
A1  - Kraft, Holger
A1  - Munk, Claus
A1  - Seifried, Frank Thomas
A1  - Wagner, Sebastian
T1  - Consumption habits and humps : [Version 23 June 2013]
T2  - SAFE working paper series ; No. 15
N2  - We show that the optimal consumption of an individual over the life cycle can have the hump shape (inverted U-shape) observed empirically if the preferences of the individual exhibit internal habit formation. In the absence of habit formation, an impatient individual would prefer a decreasing consumption path over life. However, because of habit formation, a high initial consumption would lead to high required consumption in the future. To cover the future required consumption, wealth is set aside, but the necessary amount decreases with age which allows consumption to increase in the early part of life. At some age, the impatience outweighs the habit concerns so that consumption starts to decrease. We derive the optimal consumption strategy in closed form, deduce sufficient conditions for the presence of a consumption hump, and characterize the age at which the hump occurs. Numerical examples illustrate our findings. We show that our model calibrates well to U.S. consumption data from the Consumer Expenditure Survey.
T3  - SAFE working paper - 15 
KW  - Consumption hump
KW  - life-cycle utility maximization
KW  - habit formation
KW  - impatience
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/30568
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-305683
UR  - http://ssrn.com/abstract=2259613
IS  - Version 23 June 2013
CY  - Frankfurt am Main
ER  -