Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97843
Authors: 
Kraft, Holger
Munk, Claus
Seifried, Frank Thomas
Steffensen, Mogens
Year of Publication: 
2014
Series/Report no.: 
SAFE Working Paper Series 53
Abstract: 
The observed hump-shaped life-cycle pattern in individuals' consumption cannot be explained by the classical consumption-savings model. We explicitly solve a model with utility of both consumption and leisure and with educational decisions affecting future wages. We show optimal consumption is hump shaped and determine the peak age. The hump results from consumption and leisure being substitutes and from the implicit price of leisure being decreasing over time; more leisure means less education, which lowers future wages, and the present value of foregone wages decreases with age. Consumption is hump shaped whether the wage is hump shaped or increasing over life.
Subjects: 
education
leisure
consumption hump
wage hump
JEL: 
D11
D14
D91
I21
J24
Document Type: 
Working Paper

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