The link between consumption and leisure under Cobb-Douglas preferences:Some new evidence

Brissimis, Sophocles N. and Bechlioulis, Alexandros P. (2017): The link between consumption and leisure under Cobb-Douglas preferences:Some new evidence.

Abstract

The assumption of multiplicative non-separable (Cobb-Douglas) consumer preferences is a key assumption for analyzing the interdependence of consumption and leisure choices. In this paper we solve the consumer utility maximization problem under these preferences and derive a simultaneous system of two equations corresponding to a static and an inter-temporal equation of consumption and leisure choice. The system is estimated with GMM to obtain consistent estimates of the consumer's preference parameters, of which the relative weight of consumption in the utility function is found to be much higher than that commonly assumed in DSGE model calibration exercises.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cobb-Douglas consumer preferences; consumption and leisure choices; GMM estimation; weight of consumption in utility
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C36 - Instrumental Variables (IV) Estimation; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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