Saving by Shopping? The Limits of Substitution in Household Production

Miyu Iwasaki and Kozo Ueda

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: To what extent can households buffer cost-of-living shocks by shopping more efficiently? Using novel retailer scanner data linked to individual shoppers, we isolate the savings generated by the intensive margin of shopping. We develop a structural model of endogenous shopping frequency and estimate the elasticity of substitution between time and market goods to be approximately 0.3, which is significantly lower than the values exceeding unity typically assumed in macroeconomics. This implies that households are rigid in their ability to smooth consumption. Welfare analysis shows that increases in fixed time costs lead to sizable welfare losses.

Keywords: household production; time allocation; price; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: D13 E32 E52 J22 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2026-04

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