We assess the empirical validity of the life-cycle model using a time series of cross sections and a novel parametrization of preferences. The main findings are as follows: (i) The excess sensitivity of consumption growth to labor income disappears when we control for demographic variables. (ii) The elasticity of intertemporal substitution (EIS) is a function of several variables, including the level of consumption. The EIS increases with the level of consumption. (iii) The variables that change the EIS are also important in explaining excess sensitivity over the business cycle. We are able to reconcile our results with those in the macro and micro literature.

We analyze how relative wage movements among birth cohorts and education groups affected the distribution of household consumption and economic welfare. Our empirical work draws on the best available cross-sectional data sets to construct synthetic panel data on U.S. consumption, labor supply, and wages during the 1980s. We find that low-frequency movements in the cohort-education structure of pretax hourly wages among men drove large changes in the distribution of household consumption. The results constitute a spectacular failure of between-group consumption insurance, a failure not explained by existing theories of informationally constrained optimal consumption behavior. A welfare analysis indicates that the cost of between-group consumption variability is larger than the cost of aggregate consumption variability by two orders of magnitude.

In this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in U.S. household-level data. We propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations. We estimate preference parameters using the only U.S. micro data set with complete consumption information. We show that previous rejections can be explained by the simplifying assumptions made in previous studies. We also show that results obtained using good consumption or aggregate data can be misleading.

This paper addresses two topics. First, it nests the consumption and static capital asset pricing model in a unified framework. Second, it tests for market efficiency. The first test is based on the idea that different models price risk on the basis of the covariance with different benchmark portfolios. The test of market efficiency is based on the idea that excess returns should be predictable only if risk and, therefore, second moments are predictable. The empirical results show that the static capital asset pricing model performs better than the consumption capital asset pricing model and that the former model accounts for the effects of dividend yields on expected returns.

The use of microeconomic data has become extremely widespread in applied economics. Household and firm level data are now routinely used not only in labour and industrial organization, but also in macroeconomics. The use that is made of the data is extremely varied, ranging from simple comparison of means in the evaluation literature based on Randomized Control Trials, to the matching of some data moments to calibrate the structural parameters of complex models of individual behaviour to the structural estimation of dynamic optimization models. At the same time, partly as consequences of technology advances, many more data sets are available. And much more detailed and high quality data are being collected. From a methodological point of view, important advances have been made in the techniques aimed at the elicitation in surveys of information about a variety of factors that constitute important inputs in the empirical analysis of economic behaviour. A good example, for instance, is the collection of information on household financial and non financial wealth, which was thought to be a very difficult if not impossible variable to measure accurately in a household survey and, instead, is now collected routinely and satisfactorily in many surveys, thanks to the development and standardization of new

This paper examines the prices of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for basic staples, and that the well‐known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected unit prices on average. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, because of subsistence constraints, in their ability to pay for a good. We show that under mild conditions, a model in which consumers face heterogeneous subsistence or budget constraints is equivalent to one in which consumers have access to heterogeneous outside options. We rely on known results to characterize the equilibrium price schedule, which is nonlinear in quantity. We analyze the effect of nonlinear pricing on market participation as well as the impact of a market‐wide transfer, analogous to the Progresa one, when consumers are differentially constrained. We show that the model is structurally identified from data on prices and quantities from a single market under common assumptions. We estimate the model using data on three commonly consumed commodities from municipalities and localities in Mexico. Interestingly, we find that relative to linear pricing, nonlinear pricing is beneficial to a large number of households, including those consuming small quantities, mostly because of the higher degree of market participation that nonlinear pricing induces. We also show that the Progresa transfer has affected the slopes of the price schedules of the three commodities we study, which have become steeper as consistent with our model, leading to an increase in the intensity of price discrimination. Finally, we find that a reduced form of our model, in which the size of quantity discounts depends on the hazard rate of the distribution of quantities purchased in a village, accounts for the shift in price schedules induced by the program.

This paper contributes to the debate regarding trends in consumption inequality in the United States. We present a new measure of consumption inequality based on the redesigned 1999-2011 PSID. We impute consumption to the families observed before 1999 using the more comprehensive consumption data available from 1999 onward. One advantage of this procedure is in sample verification of the quality of the imputation procedure; another is that it yields a long time series (1967-2010). Consumption inequality was stable in the 1970s, as was income inequality. It increased significantly after 1980. The Great Recession was associated with a decline in consumption inequality.

We estimate and test the restrictions of a collective model of household consumption, using z-conditional demands, in the context of a large conditional cash transfer program in rural Mexico. The model can explain the impacts of the program on the structure of food consumption. We use two plausible and novel distribution factors: the random allocation of a cash transfer to women and the relative size and wealth of the husband’s and wife’s family networks. Our structure does better at predicting the effect of exogenous increases in household income than an alternative, unitary, structure. We cannot reject efficiency of household decisions.

Stock-Market Participation, Intertemporal Substitution, and Risk-Aversion by Annette Vissing-Jørgensen and Orazio P. Attanasio. Published in volume 93, issue 2, pages 383-391 of American Economic Review, May 2003

This paper provides a critical survey of the large literature on the life cycle model of consumption, both from an empirical and a theoretical point of view. It discusses several approaches that have been taken in the literature to bring the model to the data, their empirical successes, and their failures. Finally, the paper reviews a number of changes to the standard life cycle model that could help solve the remaining empirical puzzles.