Abstract
This paper characterizes a specification for the utility of leisure that is based on the general equation for an ellipse. We show that this functional form has multiple benefits. The elliptical utility function provides Inada conditions at both the upper-bound and lower-bound constraints on labor supply, which is not the case for the two most common alternative functions. The presence of these two Inada conditions in the elliptical utility of leisure specification speeds up the computation by a factor between three and six times. We further show that the elliptical utility of leisure function is a close approximation to the constant relative risk aversion and constant Frisch elasticity functions in terms of marginal utilities, microeconomic outcomes in a life cycle model, and macroeconomic outcomes in a simple real business cycle model.
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