A Strategy for Evaluating the Opportunity Cost of Time Estimates from New Choice Margins

39 Pages Posted: 1 May 2017 Last revised: 20 Apr 2023

See all articles by K.E. McConnell

K.E. McConnell

University of Maryland - College of Agriculture & Natural Resources

Juha Siikamäki

International Union for Conservation of Nature

V. Kerry Smith

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

Date Written: April 2017

Abstract

Information frictions imply it is reasonable to expect the same commodity, in a given location, to sell for different prices at the same time. Aguiar and Hurst (AH) [2007] demonstrate how the search behavior implied by these price differences can be used estimate the opportunity cost of time. Their important insight allows the estimation of time prices over the lifecycle and the evaluation of the impacts of macro shocks on them. We provide the first assessment of the plausibility of this type of search behavior as a window on time prices. AH’s measures of the opportunity cost of time are shadow values that are jointly determined with individuals’ decision to search for bargains. Our analysis overcomes the challenges posed by this endogeneity by exploiting the complementarity between time and some types of market goods and services. We use changes in the expenditures for these goods in response to macro shocks as a basis for evaluating the AH choice margin. Using three different data sources we find that changes in expenditures on recreation related goods and services and time spent recreating are consistent with the AH framework’s assessment of the impact of the Great Recession for the opportunity cost of time.

Suggested Citation

McConnell, K.E. and Siikamäki, Juha and Smith, V. Kerry, A Strategy for Evaluating the Opportunity Cost of Time Estimates from New Choice Margins (April 2017). NBER Working Paper No. w23349, Available at SSRN: https://ssrn.com/abstract=2961054

K.E. McConnell (Contact Author)

University of Maryland - College of Agriculture & Natural Resources ( email )

0108 Symons Hall
University of Maryland
College Park, MD 20742-5551
United States

Juha Siikamäki

International Union for Conservation of Nature ( email )

Washington, DC 20036
United States

HOME PAGE: http://www.iunc.org

V. Kerry Smith

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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