Expanded Research On Eles Panal Model Based On The Theory Of Habit Formation

Using the theory of habit formation about utility depending on effective consumptions (demands) to expand the traditional consumption structure model (ELES), this dissertation builds a dynamic consumption structure model which conforms to current domestic situation. Based on the theoretical model and the feature of China’s dual economy, we choose urban and rural residents of different income levels as two research objects, to make systematic study on the habit characteristics in consumption structure using System-GMM method. The conclusions are as follows:Firstly, in7types of material consumptions except for other goods or services, urban and rural residents commonly show significant internal habit formation characteristics. With the strongest inertia performances in food and clothing, transportation and communication, household appliances, health care, education and cultural entertainment are at the medium level, but the intensity of urban residents’ habit formation is significantly lower compared with urban residents; In housing expenses, the internal habit formation effect of urban residents is very weak, but it is very strong in rural residents. As to other goods or services, the current consumptions of urban residents are indeed affected by past consumptions, while rural residents do not show inertia consumption because low purchasing power leads them failing to enjoy luxury fully.Secondly, interacting with relatively high income residents, different income levels of urban and rural residents’ food consumptions do not exist significant comparisons, the external habit formation parameters of medical care, transportation and communication are positive, showing that urban and rural residents pay more attention to relatively high income residents and tend to pursue high level goods in above consumptions. Besides above3categories, the external demonstrations of urban and rural residents are totally different. In the consumptions of clothing, education and cultural entertainments, rural residents are affected by consumers of higher income levels, while among urban residents there is nothing of these demonstrations. On the contrary, urban residents express strong internal comparisons in living, household appliances and other goods, but these consumptions of rural residents do not express the comparisons.This paper selects3kinds of different urban combinations (all groups except research object, one group above research object, all groups above research object) as the demonstration groups to explore the internal demonstration respectively. Comparison of above results, we find that residents always compare with higher income residents, all groups above research object would demonstrate on other consumers’ behavior.Fourth, we quantify the comparisons between different income levels of rural and urban residents in China’s urbanization by adjusting the parameters in theoretical model. The results show that all goods except for food and housing present different degrees of demonstrations between urban and rural residents. Health care, transportation and cultural entertainments show the most prominent positive demonstrations, but other goods or services perform negative demonstrations. With the rural income upgrading, the tendency to compare with urban residents’ consumption becomes more obvious.