Household Production and the Elasticity of Marginal Utility of Consumption

Asplund Disa ()
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Asplund Disa: Division of Transport Economics, The Swedish National Road and Transport Research Institute (VTI), VTI, Teknikringen 10, SE-102 15Stockholm, Sweden

The B.E. Journal of Economic Analysis & Policy, 2017, vol. 17, issue 4, 25

Abstract: The popular approach to estimating the elasticity of marginal utility of consumption (EMUC) (Chetty 2006, “A New Method of Estimating Risk Aversion.” American Economic Review 96 (5):1821–1834. doi:10.1257/aer.96.5.1821. http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.5.1821) is here extended by including household production. It is shown that this generalization of the model is important as omission of household production may lead to bias, as demonstrated in a numerical sensitivity analysis. An extended model with household production is used to derive new EMUC formulas. Empirical estimates based on current evidence of the included parameters suggest 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)
Date: 2017
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DOI: 10.1515/bejeap-2016-0265

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