Home Production with Time to Consume

Abstract

We construct a general equilibrium model with home production where consumers choose how much time to spend using market purchases. With aggregate United States consumption data and the American Time Use Survey, we observe that relative consumption of goods to services has fallen while the relative time households' spending using goods to services has risen. Our estimates reveal that using services has become relatively more productive than using goods in home production. This is because the outputs of the home production process are complementary, so price elasticities of relative goods/services consumption and relative goods/services time use have opposite sign. Our framework explains the observed negative co-movement of relative consumption to relative off-market time use since the early 2000s. In counterfactual analyses, we discuss the implications of our findings for the structural transformation of the U.S. economy from a goods dominated one to one where services play a larger role.