Household Production, Leisure and Living Standards

Paul Schreyer, W. Erwin Diewert

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Chapter in forthcoming NBER book Measuring Economic Sustainability and Progress, Dale W. Jorgenson, J. Steven Landefeld, and Paul Schreyer, editors
Conference held August 6-8, 2012
Forthcoming from University of Chicago Press
in NBER Book Series Studies in Income and Wealth

Household production is an important non-market activity and the empirical literature has developed different methods towards valuing household production without, however, providing a rigorous theoretical foundation for the various approaches. We follow the literature initiated by Becker and Lancaster and we develop a model of the household as producer and consumer that provides a theoretical justification for the two main approaches towards valuing labour in household production: the replacement cost approach and the opportunity cost approach. We provide a justification for the replacement cost approach as a way of valuing labour input into own-account production of households but show also that in general this is an incomplete measure of full consumption. We further develop a cost-of-living index for full consumption and full household income. The consequences of the theoretical model are illustrated by a cross-country comparison, using the data by Ahmad and Koh.

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This paper was revised on August 14, 2013

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