Chapter 4 Home production — A survey

The chapter presents a survey on home production. The terminology of the theory of home production has been used to extend economic analysis to such diverse fields as family formation (marriage and divorce), fertility decisions, and involvement in illegal activities. It has been adapted to re-examine the demand for health, the demand for travel and transport choice, and more. Many of these applications have expanded to become research fields in their own right (for example, the economics of the family, the economics of fertility, and the economics of crime). This survey focuses on home production in its narrower definition, discussing inputs, shadow prices, production technology, and other aspects of the home production process. The theory of home production cannot escape the limitations of traditional consumption theory as the outputs (that is, the commodities) are unobserved. Any empirical investigation based on this theory is therefore confined to the study of inputs, that is, changes in their level and mix as a result of changes in output, prices, and productivity. Moreover, the study of inputs is hampered by the fact that data on inputs are not readily available, the output (as mentioned) cannot be measured directly, and prices (specifically the price of time) are unknown. In an extreme case, work at home and work in the market are perfect substitutes-a person is indifferent to the composition of the goods and services he consumes, whether they are produced at home or purchased in the market.