Home Production as a Substitute to Market Consumption? Estimating the Elasticity Using Houseprice Shocks from the Great Recession

Abstract

The theory of home production suggests substitutability between market consumption and home production. The current paper estimates the intratemporal elasticity between home production and market consumption from within-person variation. Shocks in houseprices induced by the Great Recession are used to infer the extent to which persons adjusted home production in response to decreasing market consumption possibilities. By using a panel data set with detailed information on both consumption spending and time-use, we find an elasticity of -0.65. Although the scope for substitution is limited (about 12% of total consumption), there are non-negligible possibilities to substitute away from market consumption to home production.