Home Production Model Research Articles

A framework for transportation and land use integration as a parallel constrained multiple discrete-continuous extreme value (PC-MDCEV) home production model

We propose a microeconomic foundation for transportation and land use choice model integration based on the theory of home production. A utility function is developed that considers both household monetary expenditure and individual time use. We introduce a parallel constrained multiple discrete-continuous extreme value (MDCEV) structure that allows for the inclusion of multi-person households in the model. An empirical application is provided for the Greater Toronto Area using a validated synthetic dataset. Empirical results demonstrate an economy of scale in time devoted to home production, analogous to scaling exhibit in market production. It was found that the mix of dwelling types (detached, apartment, etc.) has a significant influence on both time use and consumption. Finally, we provide several directions for future research to advance the practice of urban modelling and better capture the complex dynamics of household decision-making.

REGENERATION OF A DECAYING URBAN INDUSTRIAL AREA DRIVEN BY ENDOGENOUS HOME INDUSTRIES: A CASE STUDY OF MARÉ FAVELA, RIO DE JANEIRO

ABSTRACT Favelas are low-income urban communities in Brazil, and Maré in Rio de Janeiro has the largest cluster of favelas in the country. The prevailing view of a unique, regulated, and normative city conflicts with the reality of the continued expansion of the favelas, posing challenges for architects and urban planners in developing new strategies for integrating informal areas with the main city. This study focused on a decaying industrial area adjacent to the Maré favelas and explored a sustainable path for improving both the quality of the built environment and the quality of life of the residents. Effective infrastructure and socioeconomic links between the favelas and the city were proposed. The home production model that emerged from the favelas inspired the use of the abandoned industrial area as a home-industry incubator. The study proposed an urban regeneration strategy involving a bottom-up industry-space process evolving from home industries to group industries, and finally to larger community industries. This strategy can accelerate Maré’s development and integration with the city of Rio de Janeiro.

In-kind transfers and home production.

Why are in-kind transfers a prominent feature of the U.S. social safety net, and why is such a significant fraction of these benefits given to individuals who do not actively supply labor in the market? This paper presents home production as a novel rationalization for such transfers. It first shows that in a broad class of dynamic Mirrleesian models that include only market production, the optimal allocation features undistorted marginal rates of substitution between goods whenever agents are not working, and thus in-kind benefits provided to these agents do not help decentralize an optimal allocation. However, adding home production drastically changes the nature of the optimal allocation. In particular, if goods and labor are substitutes in home production and home and market productivity are positively correlated, in-kind benefits in the form of goods used in home production, such as groceries, energy, and housing capital, should be provided to agents who do not work. A numerical simulation shows that the optimal in-kind program for disabled workers in a plausibly calibrated version of the home production model is consistent with the scale of SNAP and other programs that provide home production goods in the U.S.

Distortions, infrastructure, and female labor supply in developing countries

In this paper I document cross-country gaps between gross domestic product (GDP) per capita and GDP per worker. The gaps are driven mostly by a lower female labor force participation (LFP) in developing countries. Females began to participate more in the labor markets of these countries when more households acquired access to basic infrastructure and when distortive policies affecting the prices of household appliances were partially removed. I use a model of home production with endogenous labor force participation to account for these facts. I find that the prices of household appliances and access to infrastructure are quantitatively important in explaining cross-country labor supply differences.

The Persistence of Subsistence: Wild Food Harvests in Rural Alaska, 1983-2013

Many Alaskans depend on family-centered harvests of wild fish, wildlife, and plants in what could be considered a home production model. State and federal laws provide priorities for these “subsistence uses,” a divisive political issue in Alaska. We explore Alaska’s subsistence economies using community-level demographic, economic, and subsistence harvest estimates from more than 18,000 household surveys administered during 354 projects in 179 Alaska communities. Neither mean subsistence harvests nor mean incomes are significantly associated with time alone. But harvests are associated with time in multiple regression models that explain more than 60% of the variation in mean subsistence harvests per person at the community level. Propensity score matching finds that roads have significant, strong, and negative effects on subsistence harvests, but no significant effects on incomes. Results suggest that – given sustainably managed renewable resources and appropriate levels of exclusion – subsistence economies can co-exist with market economies.

Are taxes a good predictor of time use patterns? Examining the role of some key elasticities

A home-production model is used to explain the allocation of time between leisure, work and home production. We show that differences in taxes alone explain to a great extent the time use patterns in a set of OECD countries once several key elasticities — the elasticity of substitution between market- and home-produced goods, the Frisch elasticity of labor supply, and the relative risk aversion — are set according to empirical evidence. We also show that a realistic calibration of these key elasticities results to be more important than introducing government expenditures substitutive for home-produced goods in order to bring the model's time use predictions in line with data. This is true even for Scandinavian countries, which had posed a challenge in previous studies.

Economic crises and wellbeing: Social norms and home production

Why does work appear more important to the life satisfaction of some population groups than others? Household data from Russia in 1992 allows plausible identification of the causal impact of being workless on time spent in home production and life satisfaction. We present a model of home production in which men face stigma in some non-market activities, so that their ability to substitute into work at home is circumscribed. Consistent with our model, we find that worklessness causes men's time in productive activities to decrease much more than women's. Impacts of worklessness on life satisfaction are much larger for men.

Home production and the welfare cost of labour supply tax distortions

The traditional model of household labour supply incorporates leisure into preferences rather than focusing on how relative costs of production at home and via market activity determine market labour supply. In part, this reflects the lack of simple closed form solutions for the home production model. This article uses numerical techniques to compare the welfare costs of tax distortions of labour supply in models with and without home production. When observationally equivalent models of each type are calibrated to the same aggregate labour supply elasticity, the home production model of labour supply produces a much smaller welfare cost of tax distortions of labour supply than the standard model. Our results thus suggest that home production is important for understanding the welfare effects of labour tax policies.

Taxes and Time Use: Fiscal Policy in a Household Production Model

Time use data on work and leisure is presented for a broad group of OECD countries. The home production model explicitly accounts for taxes and public expenditures on day care and elder care, substitutes for work households perform at home. Taxes are important for matching time use patterns in Canada, the UK, and continental Europe, but cannot explain the high levels of market work and low levels of home work observed in Scandinavia. Subsidies of services like day care that substitute for home work are shown to be quantitatively important for bringing both market and home work predictions in line with the data. (JEL D13, E62, J13, J14)

Quantitative evidence on the welfare effects of home sector fiscal policy

A home production model that explicitly accounts for taxes and public expenditures on day-care and elder-care, substitutes for work households perform at home, is used to evaluate the welfare implications of alternative public expenditure policies. Both subsidy and workfare policies are welfare improving relative to a model where tax revenues are rebated lump sum. The welfare gains from optimal home sector policy design can be large.

When is the Local Average Treatment Close to the Average?: Evidence from Fertility and Labor Supply

The local average treatment effect (LATE) may differ from the average treatment effect (ATE) when those influenced by the instrument are not representative of the overall population. Heterogeneity in treatment effects may imply that parameter estimates from 2SLS are uninformative regarding the average treatment effect, motivating a search for instruments that affect a larger share of the population. In this paper, I present and estimate a model of home production with heterogeneous costs and benefits to fertility. The results indicate that a sex-preference instrument in Taiwan produces IV estimates closer to the estimated ATE than in the United States, where sex preference is weaker.

Why Does Household Investment Lead Business Investment over the Business Cycle?

Household investment leads nonresidential business fixed investment over the U.S. business cycle. Because real business cycle theory has not been able to account for this observation, it represents a potent challenge to the view that transitory productivity disturbances are the main source of aggregate fluctuations. This paper reconciles RBC theory with the investment dynamics by extending the traditional home production model to make household capital complementary to business capital and labor in market production. Empirical evidence suggesting that household capital is a complementary input in market production is also presented.

Elasticities of Substitution in Real Business Cycle Models with Home Production

This paper constructs a simple model of home production that demonstrates the connection between the intertemporal elasticity of substitution in market consumption (IES) and the static elasticity of substitution between home and market consumption (SES). Understanding this connection is important because there is a large body of empirical evidence suggesting that the IES is small, but little evidence on the size of the SES. We use our framework to shed light on the properties of a home production model with a low IES. We find that such a model must have three fundamental properties in order to match key aspects of aggregate U.S. data. First, the steady-state growth rate of technology must be the same across sectors. Second, shocks to technology must be sufficiently positively correlated across sectors. Third, capital must be used more intensively in the market sector than in the home sector. A home production model with these three properties can be surprisingly successful at reconciling the RBC paradigm with evidence for a low IES.

Elasticities of Substitution in Real Business Cycle Models with Home Production

This paper constructs a simple model of home production that demonstrates the connection between the intertemporal elasticity of substitution in market consumption (IES) and the static elasticity of substitution between home and market consumption (SES), when the utility function is additively separable over home and market consumption. Understanding this connection is important because there is a large body of empirical evidence suggesting that the IES is small, but little evidence on the size of the SES. We use our framework to shed light on the properties of a home production model with a low IES. We find that such a model must have two fundamental properties in order to match key aspects of the U.S. aggregate data. First, the steady-state growth rate of technology must be the same across sectors. Second, shocks to technology must be sufficiently positively correlated across sectors.

Valuing family household production: a contingent evaluation approach

The time of family members is often refgarded as an important input used in family household production. Unlike existing methods used in the valuation of the time spent in home production, namely the opportunity cost of time and the replacement cost method, a contingent evaluation approach is proposed here. Consistent with the way non-market goods an services are valued, the method essentially elicits people’s willingness to pay for household production whilst taking into account opportunity costs. Particular attention is also paid to the objective of valuation - whether it is for GNP accounting, matrimonial property settlements or for welfare and compensation issues - and the appropriate measures to be used - marginal, total and net valuation. Using a model of home production, these different meaures of economic value are distinguished both conceptually and in their uses. The results from a modest study of household production using the methods described here are presented. These results are then compare...