TY  - JOUR
AU  - Abel,Andrew B.
TI  - Asset Prices under Habit Formation and Catching up with the Joneses
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3279
PY  - 1991
Y2  - November 1991
UR  - http://www.nber.org/papers/w3279
L1  - http://www.nber.org/papers/w3279.pdf
N1  - Author contact info:
Andrew B. Abel
Wharton School
University of Pennsylvania
2315 Steinberg Hall - Dietrich Hall
Philadelphia, PA  19104-6367
Tel: 215/898-4801
Fax: 215/573-7244
E-Mail: abel@wharton.upenn.edu
AB  - This paper introduces a utility function that nests three classes of utility functions: (1) time-separable utility functions; (2) "catching up with the Joneses" utility functions that depend on the consumer's level of consumption relative to the lagged cross-sectional average level of consumption; and (3) utility functions that display habit formation. Closed-form solutions for equilibrium asset prices are derived under the assumption that consumption growth is i.i.d. The equity premia under catching up with the Joneses and under habit formation are, for some parameter values, as large as the historically observed equity premium in the United States.
ER  -