The allocation of time and puzzling profiles of the elderly

Abstract

We explore housing, wealth and consumption profiles of the elderly which are at odds with the conventional wisdom and standard life-cycle model. The elderly do not sell financial assets or do not liquidate their housing but still can keep the consumption despite the lower consumption expenditure. The related literature could not generate these empirically reported patterns simultaneously. Our paper complements the previous literature by explaining, at least partially, all the puzzling elderly decisions simultaneously. We develop a life-cycle model with housing and non-market time where non-market time denotes the time spent at home for household activities. We use a distinctive and intuitive approach which is modeling non-market time as a substitute for consumption expenditures and as a complement to housing. Our models explain the elderly decisions better than the standard life-cycle model. Our setting could be useful for policy evaluation and future studies related to elderly. Our model could be extended with health shocks to explain wealth holdings completely. Retirees produce more at home by increasing their non-market time. Higher home production allows retirees to maintain their consumption with lower spending and without liquidating most of housing and wealth. Time allocation affects retiree decisions considerably.