Estimating and testing preferences for consumption, work hours and savings using the PSID, the profit function and the true dynamic budget constraint

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Estimating and testing preferences for consumption, work hours and savings using the PSID, the profit function and the true dynamic budget constraint

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William Chin (IUPUI & Center on Philanthropy)

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William Chin

Abstract

Five waves of the Panel Study of Income Dynamics (PSID), 1985-1989 including both wealth supplements, are used to construct an intertemporal budget constraint for selected single headed households. A new functional form of the dual consumer profit function rationalizing consumption, labor supply and savings is specified, estimated and used to test commonly maintained separability hypotheses. Both consumption- labor and time separability are rejected. Cross-price Frisch elasticities are found not to equal zero and this in turns affects all estimates of consumption, labor supply and saving elasticities.

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Paper provided by EconWPA in its series Microeconomics with number 0312005.

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Length: 46 pages
Date of creation: 16 Dec 2003
Date of revision:
Handle: RePEc:wpa:wuwpmi:0312005

Note: Type of Document - word doc; prepared on Windows 2000; pages: 46; figures: 5. Word 2002 document
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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-01-12 (All new papers)
NEP-DGE-2004-01-12 (Dynamic General Equilibrium)
NEP-MIC-2004-01-12 (Microeconomics)

References listed on IDEAS
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Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S176-S215, June. [Downloadable!] (restricted)
Other versions:
- Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
Barnett, William A & Hahm, Jeong Ho, 1994. "Financial-Firm Production of Monetary Services: A Generalized Symmetric Barnett Variable-Profit-Function Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(1), pages 33-46, January.
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Other versions:
- David L. Ryan & Terence J. Wales, . "Flexible and Semiflexible Consumer Demands With Quadratic Engel Curves," Old UBC Departmental Papers 9630, UBC Department of Economics. [Downloadable!]
Blackorby, Charles & Primont, Daniel & Russell, R. Robert, 1977. "On testing separability restrictions with flexible functional forms," Journal of Econometrics, Elsevier, vol. 5(2), pages 195-209, March. [Downloadable!] (restricted)
Cooper, Russel J. & McLaren, Keith R. & Wong, Gary K. K., 2001. "On the empirical exploitation of consumers' profit functions in static analyses," Economics Letters, Elsevier, vol. 72(2), pages 181-187, August. [Downloadable!] (restricted)
Cooper, Russel J., 1994. "On the exploitation of additional duality relationships in consumer demand analysis," Economics Letters, Elsevier, vol. 44(1-2), pages 73-77. [Downloadable!] (restricted)

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