NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Household Production, Leisure and Living Standards

Paul Schreyer, W. Erwin Diewert


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

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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