Economics of Consumption
Paper Session
Friday, Jan. 6, 2017 3:15 PM – 5:15 PM
Hyatt Regency Chicago, New Orleans
- Chair: Scott Fulford, Consumer Financial Protection Bureau
I Want to Know It Now: Measuring Preferences Over the Temporal Resolution of Consumption Uncertainty
Abstract
We design an experiment to elicit preferences over the temporal resolution of consumption uncertainty as axiomatized in Kreps and Porteus (1978) and Epstein and Zin (1989). Subjects consume in the lab by surfing YouTube which is contrasted by a real effort task. Lotteries over consumption at different points in time introduce actual consumption uncertainty - as opposed to income uncertainty. Assessing a series of choices, we find that on average, subjects are willing to forgo about 4% of their total consumption in order to expedite the resolution of consumption uncertainty. A structural estimation suggests that subjects on average indeed prefer an early resolution consumption uncertainty. This, however, is mainly driven by a minority of subjects with a strong preference for early resolution.On the Effect of Student Loans on Access to Homeownership
Abstract
This paper estimates the effect of student loan debt on subsequent homeownership in a uniquely constructed administrative data set for a nationally representative cohort aged 23 to 31 in 2004 and followed over time, from 1997 to 2010. Our unique data combine anonymized individual credit bureau data with college enrollment histories and school characteristics associated with each enrollment spell, as well as several other data sources. To identify the causal effect of student loans on homeownership, we instrument for the amount of the individual's student loan debt using changes to the in-state tuition rate at public 4-year colleges in the student's home state. We find that a 10 percent increase in student loan debt causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during the first five years after exitingschool. Validity tests suggest that the results are not confounded by local economic conditions or non-random selection into the estimation sample. Credit scores are one important channel through which debt affects homeownership, as we find increasing debt causes students to be more likely to default, thereby severely damaging their credit.
Non-Separable Time Preferences, Novelty Consumption and Obesity: Theory and Evidence From the East German Transition to Capitalism
Abstract
Non-separable intertemporal preferences and novelty consumption have the potential to explain the persistent correlation between economic development and obesity. Employing the German reunification as a fast motion natural experiment of economic development, we study how the sudden availability of novel food products impacts individual consumption patterns and body weight. <br /><br />
Our basic hypothesis is that past consumption experiences persistently affect current food consumption. We formally present this hypothesis through a demand-driven model where forward-looking consumers have a taste for variety and non-separable intertemporal preferences. Past consumption experiences can affect current consumption choices in two ways: habit or taste formation. Under habit formation, the marginal utility of decreases with past consumption experiences, whereas under taste formation the marginal utility of consumption increases with experience. <br />
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When testing our theoretical model, exploiting the German real-world setting, we distinguish between two categories of food. Novel Food defines food that the East Germans could not consume before the reunification. This category includes both newly developed and engineered food, such as processed or convenience food, but also exotic high quality food (formerly luxury goods), such as exotic fruits. <br />
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The second part of the paper exploits datasets that are all representative in East and West Germany. These data include a battery of current and retrospective information on food consumption. Shortly after novel western food products became available in the GDR, a significant share of East Germans persistently changed their diet and started to consume these products. This ‘novelty effect’ holds for both healthy novel food, such as exotic fruits, and unhealthy novel food, such as convenience food. <br />
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All identified consumption patterns are consistent with non-separable time preferences featuring habit formation. The changes in eating habits are persistent and still detectable one decade after the reunification. Importantly, the observed consumption patterns cannot be explained by taste for variety alone.
Is there an Nth of the Month Effect? The Timing of SNAP Issuance, Food Expenditures, and Grocery Prices
Abstract
Previous research on the Supplemental Nutrition Assistance Program (SNAP) suggests that participants consume more food on days immediately following benefit issuance, prompting retailers to raise food prices to capture a portion of the transfer. Partly in response to such findings, some have called for states to stagger benefit issuance over multiple days of the month. To study the effect of staggering benefits, we link variation among states in the timing of benefit issuance to a large panel of transaction-level data from households and retailers. We document large intra-month cycles in food expenditures among SNAP-eligible households that closely track state issuance policies. However, we rule out economically significant effects on retailer pricing, which suggests that staggering benefits would not meaningfully shape the incidence of SNAP benefits.JEL Classifications
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy