NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Household Production, Leisure, and Living Standards

Paul Schreyer, W. Erwin Diewert

Chapter in NBER book Measuring Economic Sustainability and Progress (2014), Dale W. Jorgenson, J. Steven Landefeld, and Paul Schreyer, editors (p. 89 - 114)
Conference held August 6-8, 2012
Published in September 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research
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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