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Does home production replace consumption spending? Evidence from shocks in housing wealth in the Great Recession.

ABSTRACT: Becker's theory of home production suggests substitutability between consumption spending and home production. Using panel data with detailed information on spending and time use, we analyze house-holds' ability to replace consumption spending by home produced counterparts. Keeping wages fixed and changing lifetime resources by the shock to housing wealth during the Great Recession we estimate an elasticity of substitution that is consistent with a Life-Cycle Becker model. However, we estimate that only about 11% of total spending is replaceable by home production, which, in contrast to prior literature, makes it unlikely that home production fully mitigates the consequences of wealth shocks to well-being.

SUBMITTER: Been J

PROVIDER: S-EPMC7597678 | biostudies-literature | 2020 Mar

REPOSITORIES: biostudies-literature

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Does home production replace consumption spending? Evidence from shocks in housing wealth in the Great Recession.

Been Jim J Rohwedder Susann S Hurd Michael M

The review of economics and statistics 20200228 1

Becker's theory of home production suggests substitutability between consumption spending and home production. Using panel data with detailed information on spending and time use, we analyze house-holds' ability to replace consumption spending by home produced counterparts. Keeping wages fixed and changing lifetime resources by the shock to housing wealth during the Great Recession we estimate an elasticity of substitution that is consistent with a Life-Cycle Becker model. However, we estimate t ...[more]

PMID: 33132446

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