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. The idea was introduced simultaneously into macroeconomics in two separate papers by Jess Benhabib, Richard Rogerson, and Randall Wright (1991); and Jeremy Greenwood and Zvi Hercowitz (1991). Household production theory has been used to explain the rise in married female labor-force participation over the course of the 20th century, as the result of labor-saving appliances.

A simple example of this is baking a cake. The consumer purchases flour, eggs, and sugar and then uses labor, know-how 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).

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