Intertemporal Elasticity of Substitution with Leisure Margin

67 Pages Posted: 10 Oct 2017

See all articles by Takeshi Yagihashi

Takeshi Yagihashi

Old Dominion University - Strome College of Business

Juan Du

Old Dominion University - Strome College of Business

Date Written: September 25, 2017

Abstract

This paper investigates whether leisure time definitions matter in the estimation of the intertemporal elasticity of substitution of consumption (IES) by using a utility specification that allows interaction between consumption and leisure time. We find that the IES estimated using a narrowly defined leisure measure that excludes quasi-leisure activities is larger than that estimated using nonmarket time. The discrepancy is largely driven by the substitution of consumption and several leisure components over the lifecycle. This finding is robust in alternative specifications and holds well for subsamples of higher socioeconomic status. Our results demonstrate the inseparable nature of consumption and time allocation.

Keywords: intertemporal elasticity of substitution, time allocation, labor supply, earning

JEL Classification: E21, D91, J22

Suggested Citation

Yagihashi, Takeshi and Du, Juan, Intertemporal Elasticity of Substitution with Leisure Margin (September 25, 2017). Available at SSRN: https://ssrn.com/abstract=3050099 or http://dx.doi.org/10.2139/ssrn.3050099

Takeshi Yagihashi (Contact Author)

Old Dominion University - Strome College of Business ( email )

2021 Constant Hall
Norfolk, VA 23529
United States

HOME PAGE: http://https://sites.google.com/site/takeshiyagihashi/

Juan Du

Old Dominion University - Strome College of Business ( email )

Norfolk, VA 23529
United States

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