Identification of Dynamic Models of Rewards Programme

Andrew Ching, Masakazu Ishihara

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)306-323
Number of pages18
JournalJapanese Economic Review
Volume69
Issue number3
DOIs
Publication statusPublished - Sep 1 2018
Externally publishedYes

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ASJC Scopus subject areas

  • Economics and Econometrics

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