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Abstract
Although the demand for a framework with endogenous preference change was formulated back in the 1970s, it has remained unfulfilled. In this paper we propose a universal discrete dynamic framework for endogenously changing preferences based on changes in elasticity of substitution σ: almost unlimited selection of intertemporal dependency forms and functional choices make this framework universally applicable. We develop two cases: a baseline with CES utility and a monopolistic market and a relaxed model with incomplete information and oligopolistic competition and investigate numerically the dynamics of market parameters. Both investigated setups are consistent with reality. Finally, we discuss the possibilities of empirical applications with the SEDS model due to Coloma (2006).
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