The Valuation of Household Production: How Different are the Opportunity Cost and Market Price Valuation Methods?
According to New Home Economics, valuations of household production based on opportunity cost and market price methods should produce similar estimates. Data from the National Survey of Family and Households are used to assess the extent to which the opportunity cost and market price methods of valuing home production are similar. This paper shows that the two approaches are not similar once one controls for personal and family characteristics, such as number of children, age, educational attainment, and gender. Ordinary least squares regression and path analysis provide an interpretation of the differences in each estimation method. The results indicate that differences in estimating techniques can be attributed to wage effects. These findings suggest that the market price method is preferable if the purpose of valuation is to incorporate estimates into national income accounts. The opportunity cost method is preferable if the purpose is to compensate for welfare loss.
|Date of creation:||11 Dec 1996|
|Note:||Type of Document - Word 7.0; prepared on IBM PC Pentium running Windows95; to print on HP laserjet 4; pages: 25; figures: one (included)|
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- Murphy, Martin, 1978. "The Value of Nonmarket Household Production: Opportunity Cost versus Market Cost Estimates," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 24(3), pages 243-255, September.
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- Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-694, July.
- 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 101-131, June.
- Gronau, Reuben, 1980. "Home Production-A Forgotten Industry," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 408-416, August.
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