Homework in Macoreconomics I: Basic Theory (Part I of II)

Jess Benhabib, Randall Wright, Richard Rogerson

NBER Working Paper No. 3344
Issued in April 1990
NBER Program(s):   EFG

This paper argues that the home, or nonmarket, sector is empirically large, whether measured in terms of the time devoted to household production activities or in terms of the value of home produced output. We also argue that there may be a good deal of substitutability between the market and nonmarket sectors, and that this may be an important missing element in existing macroeconomic models. We pursue this within a framework that labor economists have studied for some time. Symmetrically with the market, household production uses labor and capital to produce a nonmarket consumption good according to a possibly stochastic technology. We show any model with home production is observationally equivalent to another model without home production, but with different preferences. However, for a given set of preferences, incorporating household production can dramatically change the nature and the interpretation of several macroeconomic phenomena. As an example, we show that it is possible to have involuntary unemployment and normal leisure at the same time in models with home production, something that cannot arise in models without it. As another example, we discuss how home production affects the interpretation of models with consumer durables.

download in pdf format
   (634 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3344

Published: Benhabib, Jess, R. Rogerson and R. Wright. "Homework in Macroeconomics." Journal of Political Economy 99 (1991): 1166-1185.

Users who downloaded this paper also downloaded* these:
Gronau w0137 Leisure, Home Production and Work--The Theory of The Allocation of Time Revisited
Erceg and Lindé Asymmetric Shocks in a Currency Union with Monetary and Fiscal Handcuffs
Gomme, Rogerson, Rupert, and Wright The Business Cycle and the Life Cycle
Aruoba, Davis, and Wright w18276 Homework in Monetary Economics: Inflation, Home Production, and the Production of Homes
Krusell, Mukoyama, Rogerson, and Şahin w15252 Aggregate Labor Market Outcomes: The Role of Choice and Chance
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us