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Household Production and the Elasticity of Marginal Utility of Consumption

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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)

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.

Suggested Citation

  • Asplund Disa, 2017. "Household Production and the Elasticity of Marginal Utility of Consumption," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-25, October.
    • Handle: RePEc:bpj:bejeap:v:17:y:2017:i:4:p:25:n:6
    DOI: 10.1515/bejeap-2016-0265
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    References listed on IDEAS

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    More about this item

    Keywords

    elasticity of marginal utility of consumption; household production; labor supply; coefficient of relative risk aversion; consumer behavior;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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