Working Paper: NBER ID: w3344
Authors: Jess Benhabib; Richard Rogerson; Randall Wright
Abstract: This paper argues that the home, or nonmarket, sector is empirically large, whether measured in terms of the time devoted to household production activities or in terms of the value of home produced output. We also argue that there may be a good deal of substitutability between the market and nonmarket sectors, and that this may be an important missing element in existing macroeconomic models. We pursue this within a framework that labor economists have studied for some time. Symmetrically with the market, household production uses labor and capital to produce a nonmarket consumption good according to a possibly stochastic technology. We show any model with home production is observationally equivalent to another model without home production, but with different preferences. However, for a given set of preferences, incorporating household production can dramatically change the nature and the interpretation of several macroeconomic phenomena. As an example, we show that it is possible to have involuntary unemployment and normal leisure at the same time in models with home production, something that cannot arise in models without it. As another example, we discuss how home production affects the interpretation of models with consumer durables.
Keywords: home production; macroeconomic models; substitutability; involuntary unemployment
JEL Codes: E24; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| home sector (R38) | economic contribution (E20) |
| market work (D40) | home production (D13) |
| home production (D13) | labor market dynamics (J29) |
| home production (D13) | macroeconomic understanding (E60) |
| home production (D13) | consumption behaviors (D10) |