Staff Report 186

Estimating Substitution Elasticities in Household Production Models

Peter Rupert
Randall Wright | Consultant
Richard Rogerson

Published December 1, 1994

Dynamic general equilibrium models that include explicit household production sectors provide a useful framework within which to analyze a variety of macroeconomic issues. However, some implications of these models depend critically on parameters, including the elasticity of substitution between market and home consumption goods, about which there is little information in the literature. Using the PSID, we estimate these parameters for single males, single females, and married couples. At least for single females and married couples, the results indicate a high enough substitution elasticity that including home production will make a significant difference in applied general equilibrium theory.

Published In: Economic Theory (Vol. 6, No. 1, June 1995, pp. 179-193)

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