The name is absent

τ , and Wt is the present value of lifetime assets at t.

The marginal utility of good i (i = 1, ..., N) implied by the assumed utility structure is

Thus, with intertemporally nonseparable preferences, the marginal utility of x equals the marginal
utility of current consumption plus its discounted marginal effect on the utility in the next period.
It distinguishes a rational household from a myopic one because the rational household is aware of
the impact of its current consumption on future utilities and makes explicit use of this information
when optimizing intertemporally, while the myopic household is ignorant of such information.

Maximize the lifetime utility function (1) subject to the budget constraint (2). The first-order
conditions (FOC) of the representative household choosing optimally to allocate consumption over
time are

MMU= = λ_t for i = 1,..., N                              (4)

pit

where pi is the price of good i, λt is the marginal utility of wealth at t. Although λt is unobservable,
using the FOC for the 1st good to eliminate λt from other FOCs yields

ɪMUit = ɪMUjt for j = 2,..., N.                        (5)

p1t            pjt

Equation (5) is the Euler equation that will be used to form the basis of our empirical work.

Habit persistence requires that consumption be positively related across periods. Becker and
Murphy (1988) proved that, for consumption to be habitual, consumption in the previous period
must have a positive marginal effect on the marginal utility of current consumption. In the context
of partial derivatives, this implies _gx ∂u^τ—1 > 0∙ This positive marginal effect may come from a
variety of potential sources such as learning-by-doing or cost-of-adjustment. Whatever causes the
habit, the degree of a habit is an increasing function of, inter alia, the magnitude of this marginal
effect∙

2.2 Effects of food safety and health information on consumption

In a theoretical paper, Zhen and Wohlgenant (2005) studied the impacts of adverse food safety
and health information on consumer demand of meat, using a direct quadratic utility function
augmented with habit and food safety variables∙ Theoretical findings that may have important
bearing on our empirical analysis are described below∙

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