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Homework in Macoreconomics I: Basic Theory (Part I of II)

  • Jess Benhabib
  • Randall Wright
  • Richard Rogerson

This paper argues that the home, or nonmarket, sector is empirically large, whether measured in terms of the time devoted to household production activities or in terms of the value of home produced output. We also argue that there may be a good deal of substitutability between the market and nonmarket sectors, and that this may be an important missing element in existing macroeconomic models. We pursue this within a framework that labor economists have studied for some time. Symmetrically with the market, household production uses labor and capital to produce a nonmarket consumption good according to a possibly stochastic technology. We show any model with home production is observationally equivalent to another model without home production, but with different preferences. However, for a given set of preferences, incorporating household production can dramatically change the nature and the interpretation of several macroeconomic phenomena. As an example, we show that it is possible to have involuntary unemployment and normal leisure at the same time in models with home production, something that cannot arise in models without it. As another example, we discuss how home production affects the interpretation of models with consumer durables.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3344.

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Date of creation: Apr 1990
Date of revision:
Publication status: published as Benhabib, Jess, R. Rogerson and R. Wright. "Homework in Macroeconomics." Journal of Political Economy 99 (1991): 1166-1185.
Handle: RePEc:nbr:nberwo:3344
Note: EFG
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  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
  2. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  3. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515.
  4. Lawrence J. Christiano & Martin Eichenbaum, 1988. "Is Theory Really Ahead of Measurement? Current Real Business Cycle Theories and Aggregate Labor Market Fluctuations," NBER Working Papers 2700, National Bureau of Economic Research, Inc.
  5. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 203-228, March.
  6. Karl Shell & Randall Wright, 2010. "Indivisibilities, Lotteries and Sunspot Equilibria," Levine's Working Paper Archive 2061, David K. Levine.
  7. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1990. "Homework In Macroeconomics Ii: Aggregate Fluctuations," Working Papers 90-18, C.V. Starr Center for Applied Economics, New York University.
  8. Gary S. Becker, . "Family Economics and Macro Behavior," University of Chicago - Population Research Center 87-16, Chicago - Population Research Center.
  9. Cho, Jang-Ok & Rogerson, Richard, 1988. "Family labor supply and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 233-245.
  10. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics.
  11. Gronau, Reuben, 1987. "Home production -- A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 4, pages 273-304 Elsevier.
  12. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  13. Jeremy Greenwood & Gregory W. Huffman, 1988. "On Modelling the Natural Rate of Unemployment with Indivisible Labour," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 587-609, August.
  14. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-96, December.
  15. Eichenbaum, Martin & Hansen, Lars Peter, 1990. "Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 53-69, January.
  16. Eisner, Robert, 1988. "Extended Accounts for National Income and Product," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1611-84, December.
  17. Gary D. Hansen & Thomas J. Sargent, 1987. "Straight Time and Overtime in Equilibrium," UCLA Economics Working Papers 455, UCLA Department of Economics.
  18. Reuben Gronau, 1976. "Leisure, Home Production and Work--The Theory of The Allocation of Time Revisited," NBER Working Papers 0137, National Bureau of Economic Research, Inc.
  19. Gronau, Reuben, 1980. "Home Production-A Forgotten Industry," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 408-16, August.
  20. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  21. Hawrylyshyn, Oli, 1976. "The Value of Household Services: A Survey of Empirical Estimates," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 22(2), pages 101-31, June.
  22. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  23. Bencivenga, Valerie R, 1992. "An Econometric Study of Hours and Output Variation with Preference Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 449-71, May.
  24. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
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