Working Paper: NBER ID: w23349
Authors: K.E. McConnell; Juha V. Siikamäki; V. Kerry Smith
Abstract: Information frictions imply it is reasonable to expect the same commodity, in a given location, to sell for different prices at the same time. Aguiar and Hurst (AH) [2007] demonstrate how the search behavior implied by these price differences can be used estimate the opportunity cost of time. Their important insight allows the estimation of time prices over the lifecycle and the evaluation of the impacts of macro shocks on them. We provide the first assessment of the plausibility of this type of search behavior as a window on time prices. AH’s measures of the opportunity cost of time are shadow values that are jointly determined with individuals’ decision to search for bargains. Our analysis overcomes the challenges posed by this endogeneity by exploiting the complementarity between time and some types of market goods and services. We use changes in the expenditures for these goods in response to macro shocks as a basis for evaluating the AH choice margin. Using three different data sources we find that changes in expenditures on recreation related goods and services and time spent recreating are consistent with the AH framework’s assessment of the impact of the Great Recession for the opportunity cost of time.
Keywords: opportunity cost of time; consumer behavior; macroeconomic shocks; recreation expenditures
JEL Codes: D13; D61; D83; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Great Recession (G01) | opportunity cost of time (J22) |
| opportunity cost of time (J22) | expenditures on recreation-related goods and services (Q26) |
| time spent shopping (L81) | prices consumers pay (L11) |
| Great Recession (G01) | changes in shopping behaviors (F61) |
| changes in shopping behaviors (F61) | opportunity cost of time (J22) |
| Great Recession (G01) | time allocation (J22) |
| time allocation (J22) | expenditures on recreation-related goods and services (Q26) |
| state-level unemployment rates (J64) | expenditures on recreation-related goods and services (Q26) |
| median household income (D31) | expenditures on recreation-related goods and services (Q26) |