Advantages of an Ellipse when Modeling Leisure Utility

Richard Evans and Kerk L. Phillips
Additional contact information
Kerk L. Phillips: Brigham Young University

Computational Economics, 2018, vol. 51, issue 3, No 7, 513-533

Abstract: Abstract This paper characterizes a specification for the utility of leisure that is based on the general equation for an ellipse. We show that this functional form has multiple benefits. The elliptical utility function provides Inada conditions at both the upper-bound and lower-bound constraints on labor supply, which is not the case for the two most common alternative functions. The presence of these two Inada conditions in the elliptical utility of leisure specification speeds up the computation by a factor between three and six times. We further show that the elliptical utility of leisure function is a close approximation to the constant relative risk aversion and constant Frisch elasticity functions in terms of marginal utilities, microeconomic outcomes in a life cycle model, and macroeconomic outcomes in a simple real business cycle model.

Keywords: Ellipse; Labor; Leisure; Utility; Inada conditions; Occasionally binding constraints; Interior solutions (search for similar items in EconPapers)
JEL-codes: C02 C60 C63 J20 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s10614-016-9619-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Advantages of an Ellipse when Modeling Leisure Utility (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:51:y:2018:i:3:d:10.1007_s10614-016-9619-7

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-016-9619-7

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().