Informal Institutions, Consumption Custom, and Assumption of OLG Model—A Theoretical Analysis on Households’ Consumption Decisions in the Oriental Culture and Belief

Abstract

Orthodox consumption theories have not incorporated the overlapping-generations (OLG) model and wealth-stock model, whereas this article explains households’ characters in consumption and savings in countries such as China and some other regions from the viewpoints of social convention, moral formation, ethics, and other informal institutions. The authors exploit and extend the OLG model, introduce the concepts of bequest, gift, and wealth preference to the economic agent’s utility function, then apply optimal conditions to analyzing the characters and problems concerning consumption and savings behavior. Furthermore, they deliberate on the effects of this analysis on government macroeconomic policies and suggest some relevant theoretical thinking and solutions.