Working papers in Transport Economics
Household production and the Elasticity of Marginal Utility of Consumption
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; (follow links to similar papers)
JEL-Codes: D10; D60; J22; (follow links to similar papers)
38 pages, March 29, 2016
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