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We analyze the implications of household-level adjustment costs for the dynamics of aggregate consumption. We show that an economy in which agents have \"consumption commitments\" is approximately equivalent to a habit formation model in which the habit stock is a weighted average of past consumption if idiosyncratic risk is large relative to aggregate risk. Consumption commitments can thus explain the empirical regularity that consumption is excessively sensitive and excessively smooth, findings that are typically attributed to habit formation. Unlike habit formation and other theories, but consistent with empirical evidence, the consumption commitments model also predicts that excess sensitivity and smoothness vanish for large shocks. These results suggest that behavior previously attributed to habit formation may be better explained by adjustment costs. We develop additional testable predictions to further distinguish the commitment and habit models and show that the two models have different welfare implications.

This paper examines the impact of exposure to foreign media on the economic behavior of agents in a totalitarian regime. We study private consumption choices focusing on the former East Germany, where differential access to Western television was determined by geographic features. Using data collected after the transition to a market economy, we find no evidence of a significant impact of previous exposure to Western television on aggregate consumption levels. However, exposure to Western broadcasts affects the composition of consumption, biasing choices in favor of categories of goods with a high intensity of prereunification advertisement. The effects vanish by 1998.

Addiction creates an intertemporal link between a consumer’s past and present decisions, altering their responsiveness to price changes relative to nonaddictive products. We construct a dynamic model of rational addiction and endogenous consumption to investigate how consumers respond to policy interventions that aim to reduce purchases of cigarettes. We find that, on average, the category elasticity is about 35% higher when the model correctly accounts for addiction. However, some policies spur substitution from more expensive single packs to less expensive cartons of cigarettes, resulting in higher overall consumption for some consumers.

We propose a synthesis of two lines of sociological research on boundary spanning in cultural production and consumption. One, research on cultural omnivorousness, analyzes choice by heterogeneous audiences facing an array of crisp cultural offerings. The other, research on categories in markets, analyzes reactions by homogeneous audiences to objects that vary in the degree to which they conform to categorical codes. We develop a model of heterogeneous audiences evaluating objects that vary in typicality. This allows consideration of orientations on two dimensions of cultural preference: variety and typicality. We propose a novel analytic framework to map consumption behavior in these two dimensions. We argue that one audience type, those who value variety and typicality, are especially resistant to objects that span boundaries. We test this argument in an analysis of two large-scale datasets of reviews of films and restaurants.

We prove existence of a recursive competitive equilibrium (RCE) for an Aiyagari-style economy with permanent income shocks and derive important economic implications. We show that there exist equilibria where borrowing constraints are never binding and establish a nontrivial lower bound on the equilibrium interest rate. These results imply distinct consumption dynamics compared to existing studies. We present a new approach to solve the agent's problem that uses lattices of consumption functions to deal with permanent income shocks and an unbounded utility function. The approach provides a theoretical foundation for convergence of the time iteration algorithm widely used in applied work.

Multipart tariffs are widely favored within service industries as an efficient means of mapping prices to differential levels of consumer demand. Whether they benefit consumers, however, is far less clear as they pose individuals with a potentially difficult task of dynamically allocating usage over the course of each billing cycle. In this paper we explore this welfare issue by examining the ability of individuals to optimally allocate consumption over time in a stylized cellular-phone usage task for which there exists a known optimal dynamic utilization policy. Actual call behavior over time is modeled using a dynamic choice model that allows decision makers to both discount the future (be myopic) and be subject to random errors when making call decisions. Our analysis provides a “half empty, half full” view of intuitive optimality. Participants rapidly learn to exhibit farsightedness, yet learning is incomplete with some level of allocation errors persisting even after repeated experience. We also find evidence for an asymmetric effect in which participants who are exogenously switched from a low (high) to high (low) allowance plan make more (fewer) errors in the new plan. The effect persists even when participants make their own plan choices. Finally, interventions that provide usage information to help participants eradicate errors have limited effectiveness.

While previous work has focused on the positive impact of smiles on interpersonal perceptions, this research proposes and finds that smile intensity differentially affects two fundamental dimensions of social judgments—warmth and competence. A marketer displaying a broad smile, compared to a slight smile, is more likely to be perceived by consumers as warmer but less competent. Furthermore, the facilitative effect of smile intensity on warmth perceptions is more prominent among promotion-focused consumers and in low-risk consumption contexts, while the detrimental effect of smile intensity on competence perceptions is more likely to occur among prevention-focused consumers and in high-risk consumption situations. Field observations in a crowdfunding context further indicate that the effects of smile intensity on warmth and competence perceptions have downstream consequences on actual consumer behaviors.

This paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock. Consumption rose significantly after the fiscal policy announcement: during the ten subsequent months, for each $1 received, consumers on average spent $0.80. We find a strong announcement effect—19 percent of the response occurs during the first two-month announcement period via credit cards. Subsequently, consumers switched to debit cards after disbursement before finally increasing spending on credit cards in the later months. Consumers with low liquid assets or with low credit card limit experienced stronger consumption responses.

How is consumer desire transformed by contemporary technology? Most extant theory holds that technology rationalizes and reduces passion. In our investigation of networks of desire—complex open systems of machines, consumers, energy, and objects—we find technology increasing the passion to consume. Effects depend upon participation in the network, which can be private, public, or professional. Private participation tends to discipline passion into interests reflecting established cultural categories. Public and professional participation build new connections between extant desires and a wider network, decentering ties and deterritorializing flows that limit hungers to emplaced bodies. Public and professional participation drive consumption passion to transgressive extremes. We use ethnography and netnography to study online food image sharing, a broad field that includes everything from friend networks to food bloggers. Using and extending Deleuze and Guattari’s desire theory, we conceptualize desire as energetic, connective, systemic, and innovative. Critically examining the role of technocapitalism in the realm of consumption passion, we question the emancipatory possibilities of unfettered desire. Networks of desire create a passionate new universe of technologically enhanced desire, one that challenges the way we think about consumer collectives, capitalism, emancipation, and posthuman consumption.

I develop a model in which individual time discount rates have a larger effect on human capital accumulation when credit constraints are binding. Impatient individuals obtain less schooling when borrowing constraints limit the ability to finance consumption during school. Using data from the NLSY79, I show that self-reported measures of time preferences have a significantly higher effect on the college attendance decisions of blacks than those of whites and the decisions of low-income youths than those of high-income youths. These results provide new evidence that members of disadvantaged groups obtain lower levels of schooling because they are credit constrained.