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Estimating substitution elasticities in household production models

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Summary

Dynamic general equilibrium models that include explicit household production sectors provide a useful framework within which to analyze a variety of macroeconomic issues. However, some implications of these models depend critically on parameters, including the elasticity of substitution between market and home consumption goods, about which there is little information in the literature. Using the PSID, we estimate these parameters for single males, single females, and married couples. At least for single females and married couples, the results indicate a high enough substitution elasticity that including home production will make a significant difference in applied general equilibrium theory.

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Authors and Affiliations

  1. Federal Reserve Bank of Cleveland, East 6th and Superior, 44101, Cleveland, OH, USA

    Peter Rupert

  2. Department of Economics, University of Minnesota, 55455, Minneapolis, MN, USA

    Richard Rogerson

  3. Federal Reserve Bank of Minneapolis, USA

    Richard Rogerson & Randall Wright

  4. Department of Economics, University of Pennsylvania, 19104, Philadelphia, PA, USA

    Randall Wright

Authors
  1. Peter Rupert
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  2. Richard Rogerson
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  3. Randall Wright
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Additional information

We thank the National Science Foundation for financial support, and Ellen McGrattan, David Runkle, George Jakubson, Zvi Eckstein, Timothy J. Kehoe, Ed Prescott, a referee, and seminar participants at the Cleveland Fed and the Penn Macro Lunch Group for comments. The views expressed here are those of the authors and not necessarily those of any Federal Reserve Bank or the Federal Reserve System.

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Rupert, P., Rogerson, R. & Wright, R. Estimating substitution elasticities in household production models. Econ Theory 6, 179–193 (1995). https://doi.org/10.1007/BF01213946

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  • DOI: https://doi.org/10.1007/BF01213946

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