Household production function

Consumers often choose not directly from the commodities that they purchase but from commodities they transform into goods through a household production function. It is these goods that they value. The idea was originally proposed by Gary Becker, Kelvin Lancaster, and Richard Muth in the mid-1960s.[1] The idea was introduced simultaneously into macroeconomics in two separate papers by Jess Benhabib, Richard Rogerson, and Randall Wright (1991);[2] and Jeremy Greenwood and Zvi Hercowitz (1991).[3]

Example

A simple example of this is baking a cake. The consumer purchases flour, eggs, and sugar and then uses labor and time producing a cake. The consumer did not really want the flour, sugar, or eggs, but purchased them to produce the cake for consumption (instead of buying it, e.g., from a bakery).

See also

References

  1. Muth, Richard F. (1966). "Household Production and Consumer Demand Functions". Econometrica 34 (3): 699–708. doi:10.2307/1909778. JSTOR 1909778.
  2. Benhabib, Jess; Rogerson, Richard; Wright, Randall D. (1991). "Homework in Macroeconomics: Household Production and Aggregate Fluctuations". Journal of Political Economy 99 (6): 1166–1187. doi:10.1086/261796. JSTOR 2937726.
  3. Greenwood, Jeremy; Hercowitz, Zvi (1991). "The Allocation of Capital and Time over the Business Cycle". Journal of Political Economy 99 (6): 1188–1214. doi:10.1086/261797. JSTOR 2937727.

Further reading


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