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Identification of Dynamic Models of Rewards Programme

Identification of Dynamic Models of Rewards Programme Abstract “Frequent-buyer” rewards programmes are commonly used by companies as a marketing tool to compete for market share. They provide a unique environment for studying consumers’ forward-looking behaviour. The consumer’s problem on accumulating reward points can be formulated as a stationary infinite horizon discrete choice dynamic programming model. We show that the parameters of this model, including the discount factor, are well-identified. In particular, it is possible to identify state-dependent discount factors (i.e. discount factors can vary with the number of reward points). We discuss how this identification result is related to the goal-gradient hypothesis studied in the consumer psychology literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

Identification of Dynamic Models of Rewards Programme

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References (60)

Publisher
Springer Journals
Copyright
2018 Japanese Economic Association
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1111/jere.12188
Publisher site
See Article on Publisher Site

Abstract

Abstract “Frequent-buyer” rewards programmes are commonly used by companies as a marketing tool to compete for market share. They provide a unique environment for studying consumers’ forward-looking behaviour. The consumer’s problem on accumulating reward points can be formulated as a stationary infinite horizon discrete choice dynamic programming model. We show that the parameters of this model, including the discount factor, are well-identified. In particular, it is possible to identify state-dependent discount factors (i.e. discount factors can vary with the number of reward points). We discuss how this identification result is related to the goal-gradient hypothesis studied in the consumer psychology literature.

Journal

The Japanese Economic ReviewSpringer Journals

Published: Sep 1, 2018

Keywords: economics, general; microeconomics; macroeconomics/monetary economics//financial economics; econometrics; development economics; economic history

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