-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 … some age, the impatience outweighs the habit concerns so that consumption starts to decrease. We derive the optimal …

. Hence, household consumption is not only determined by habit persistence but also by interpersonal comparisons. Most …