This paper analyzes popular time-nonseparable utility functions that describe
"habit formation" consumer preferences comparing current consumption with the
time averaged past consumption of the same individual and "catching up with the
Joneses" (CuJ) models comparing individual consumption with a cross-sectional
average consumption level.

Few of these models give reasonable optimum consumption time series. We
introduce theoretically justified utility specifications leading to a plausible
consumption behavior to show that habit formation preferences must be described
by a power CRRA utility function different from the exponential CARA used for
CuJ.