TY - JOUR AU - Benhabib,Jess AU - Wright,Randall AU - Rogerson,Richard TI - Homework in Macoreconomics I: Basic Theory (Part I of II) JF - National Bureau of Economic Research Working Paper Series VL - No. 3344 PY - 1990 Y2 - April 1990 UR - http://www.nber.org/papers/w3344 L1 - http://www.nber.org/papers/w3344.pdf N1 - Author contact info: Jess Benhabib Department of Economics New York University 19 West 4th Street, 6th Floor New York, NY 10012 Tel: 212/998-8971 Fax: 212/995-4186 E-Mail: jess.benhabib@nyu.edu Randall Wright Department of Finance and Department of Economics University of Wisconsin - Madison Grainger Hall 975 University Ave Madison, WI 53706 E-Mail: rwright@bus.wisc.edu Richard Rogerson Woodrow Wilson School of Public and International Affairs 323 Bendheim Hall Princeton University Princeton, NJ 08544 Tel: 609-258-4839 Fax: 609-258-5349 E-Mail: rdr@princeton.edu AB - 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. ER -