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The Effect of Unemployment on Consumption: An Experimental Analysis

Carbone, E. and Hey, J.D. (2004) The Effect of Unemployment on Consumption: An Experimental Analysis. The Economic Journal, 114 (497). pp. 660-683. ISSN 0013-0133

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This paper reports on an experiment that investigates the apparently robust phenomenon of over-sensitivity of consumption to current income. Using a particularly simple formulation, we also investigate whether individuals correctly respond to their employment status. We find that subjects over-react. Our data enables us to investigate where this over-sensitivity originates; we conclude that economic agents differ in their ability to plan ahead and understand the dynamic process determining their employment status. However, agents seem able to respond appropriately to changes in the parameters governing their decision processes, in that the comparative static predictions of the theory are largely confirmed.

Item Type: Article
Institution: The University of York
Academic Units: The University of York > Economics and Related Studies (York)
Depositing User: York RAE Import
Date Deposited: 10 Feb 2009 16:07
Last Modified: 10 Feb 2009 16:07
Published Version: http://dx.doi.org/10.1111/j.1468-0297.2004.00236.x
Status: Published
Publisher: Blackwell Publishing
Identification Number: 10.1111/j.1468-0297.2004.00236.x
URI: http://eprints.whiterose.ac.uk/id/eprint/7601

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