Time Preference and the Great Depression: Evidence from Firewood Prices in Portland, Oregon
The present study gathers prices for firewood and estimates the premium paid for dry fuel, relative to green wood, on a monthly basis from 1922 to 1935. This premium conveys consumers’ willingness-to-pay for a good available for immediate consumption relative to the same good ready for use after roughly one year. Embedded in this premium are consumers’ time preferences. The paper documents time series variation in the dry fuel premium and associated time preference spanning the macroeconomic shocks before, during, and after the Great Depression. The dry fuel premium increased by a factor of four during the recession of 1923 to 1924, and fell by a factor of two following the Great Crash of October 1929. Key factors in determining the premium for dry fuel were variation in wages, inflation, stock market returns, and bond yields. This paper supports the uncertainty hypothesis as an explanation for the precipitous fall in consumption expenditures following the Great Crash of 1929.
The author thanks Wayne Gray, Michael Greenstone, Matteo Maggiori, Erin Mansur, and other participants at the NBER EEE 2018 spring meetings; participants at the 2018 Northeast Workshop on Energy Policy and Economics; Karen Fisher-Vanden, Seth Blumsack, and Joel Landry and seminar participants at Penn State University, for helpful and instructive suggestions as well as Daniel Nagin, Akshaya Jha and Karen Clay for early input. Thanks to Marcos Barrozo-Filho for excellent research assistance. Any remaining errors are the responsibility of the author. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.