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Does Home Production Replace Consumption Spending? Evidence from Shocks in Housing Wealth in the Great Recession

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  • Jim Been

    (Leiden University and Netspar)

  • Susann Rohwedder

    (RAND Corp., MEA, and Netspar)

  • Michael Hurd

    (RAND Corp., NBER, MEA, and Netspar)

Abstract

Becker's theory of home production suggests substitutability between consumption spending and home production. Using panel data with detailed information on spending and time use, we analyze households' ability to replace consumption spending by home-produced counterparts. Keeping wages fixed and changing lifetime resources by the shock to housing wealth during the Great Recession, we estimate an elasticity of substitution that is consistent with a life cycle Becker model. However, we estimate that only about 11% of total spending is replaceable by home production, which, in contrast to prior literature, makes it unlikely that home production fully mitigates the consequences of wealth shocks to well-being.

Suggested Citation

  • Jim Been & Susann Rohwedder & Michael Hurd, 2020. "Does Home Production Replace Consumption Spending? Evidence from Shocks in Housing Wealth in the Great Recession," The Review of Economics and Statistics, MIT Press, vol. 102(1), pages 113-128, March.
    • Handle: RePEc:tpr:restat:v:102:y:2020:i:1:p:113-128
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    1. Jim Been & Susann Rohwedder & Michael Hurd, 2021. "Households’ joint consumption spending and home production responses to retirement in the US," Review of Economics of the Household, Springer, vol. 19(4), pages 959-985, December.
    2. Jim Been & Eduard Suari‐Andreu & Marike Knoef & Rob Alessie, 2024. "Consumption and time use responses to unemployment: Implications for the lifecycle model," Economica, London School of Economics and Political Science, vol. 91(361), pages 1-32, January.
    3. Murray, Tim & Dunn, Richard A., 2022. "Household production, home improvement, and housing investment among older Americans," Journal of Housing Economics, Elsevier, vol. 56(C).
    4. Yu, Jian & Shi, Xunpeng & Cheong, Tsun Se, 2021. "Distribution dynamics of China's household consumption upgrading," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 193-203.
    5. Barry R. Cobb & Tim Murray & Jeffrey S. Smith, 2022. "Adjustable consumption model for retirees to balance spending and risk," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(2), pages 420-451, April.
    6. Marco Bardoscia & Adrian Carro & Marc Hinterschweiger & Mauro Napoletano & Lilit Popoyan & Andrea Roventini & Arzu Uluc, 2024. "The impact of prudential regulations on the UK housing market and economy: Insights from an agent-based model," Working Papers 118, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    7. Takeshi Yagihashi & Juan Du, 2023. "Intertemporal elasticity of substitution with leisure margin," Review of Economics of the Household, Springer, vol. 21(4), pages 1473-1504, December.

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