Household production and the Elasticity of Marginal Utility of Consumption

Disa Thureson ()
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Disa Thureson: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

No 2016:10, Working papers in Transport Economics from CTS - Centre for Transport Studies Stockholm (KTH and VTI)

Abstract: Chetty (2006) developed a new method of estimating the Elasticity of Marginal Utility of Consumption (EMUC) from observed work time responses to wage changes and derived an upper bound of 2 for this parameter. Here I show that the omission of household production in Chetty’s model may lead to bias, and perform a numerical sensitivity analysis of Chetty’s results in this respect. I develop a new model that includes household production from which I derive new, unbiased EMUC formulas. I offer empirical estimates based on current evidence of the included parameters, suggesting a lower bound for EMUC of about 0.9.

Keywords: Elasticity of marginal utility of consumption; Household production; Labor supply; Coefficient of relative risk aversion; Consumer behavior (search for similar items in EconPapers)
JEL-codes: D10 D60 J22 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-03-29
New Economics Papers: this item is included in nep-lma and nep-upt
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