ICT, Leisure Externality and Wellbeing

ICTs that offers various goods and services to be used specially during the leisure time create two types of favourable ‘leisure externality’ - on direct utility and income through the formation of knowledge and social capital required productivity improvement. The paper builds a two-sector static model with consumption and leisure goods to capture such leisure externalities endogenously. Raising marginal benefits of leisure, one externality increases the demand for labour to meet additional production for ICT goods and consumption goods. This apart, the other externality raises productivity through knowledge formation, which could bind the labour demand. In effect, both income and utility tend to rise in presence both externalities, but it does not necessarily reduce the gap between them (known as Eastelin paradox) and depends upon their relative strengths .