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The Elasticity of Substitution Between Time and Market Goods: Evidence from the Great Recession

Author

Listed:
  • Aviv Nevo

    (Northwestern University)

  • Arlene Wong

    (Northwestern University)

Abstract

This paper examines household consumption smoothing via variation in time spent shopping over the business cycle. Using scanner data on grocery purchases, we document how households lower the prices that they pay during downturns by increasing their coupon usage, sale purchasing, buying larger sizes and generic products. We show that this behavior is consistent with a significant decline in households' cost of time in recessions, which is comparable to the decline in cost of time over an individual's life-cycle. Using our estimated cost of time and data from time-use diaries, we estimate a high elasticity of substitution between time and goods in home production. This implies that households are able to smooth a sizable fraction of consumption, relative to market expenditures, by varying their intra-temporal allocation of time during recessions.

Suggested Citation

  • Aviv Nevo & Arlene Wong, 2014. "The Elasticity of Substitution Between Time and Market Goods: Evidence from the Great Recession," 2014 Meeting Papers 315, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:315
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    References listed on IDEAS

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    1. Mark Bils, 2009. "Do Higher Prices for New Goods Reflect Quality Growth or Inflation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 637-675.
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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