5.4: Becker’s (1965) Household Production Model
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Another model of consumer behavior is Becker’s (1965) household production model. Here, the consumer has a utility function that depends on two things:
- household produced goods and services, and
- time spent in leisure activities.
To illustrate the idea of Becker’s model, suppose that the household produced good in question is a meal. To be more specific, let us suppose this meal consists of pasta with a marinara sauce. Ultimate utility comes from consuming the meal. However, in order to obtain this utility, the consumer will need to:
- purchase ingredients from the marketplace,
- spend time in the kitchen and dining room, and
- have some knowledge about cooking. This can be called human capital.
A key point of the Becker model is that items the consumer buys at the supermarket provide him or her with no utility per se . In other words, Inputs such as a bag of pasta, tomatoes, garlic cloves, and oregano leaves do not satisfy the consumer. Satisfaction is not obtained until these ingredients have been combined with time and human capital to produce a meal.
Almost any human activity could be characterized in terms of the household production model. Even a good night’s rest could be viewed as household production. A good night’s requires purchased inputs (shelter, a bed, linens, and possibly sleeping pills). It requires an investment in time (normally 6 to 8 hours). Finally, it might require some human capital (the ability to clear one’s mind of the pressures of the day and relax into sleep). Similarly a sporting event, like a football game, could be characterized as another household produced good. This requires purchased inputs (tickets, television, cable or satellite subscription, snacks), time (several hours), and human capital (some knowledge of the rules and strategies of the game). The point being made here is that the household production idea is broadly applicable to human activities. However, in actual implementations of the Becker model, activities such as sleep or enjoying sporting events might be lumped into leisure time.
It would be wrong to suppose that only activities within the home would classify as household production and fall within the Becker framework. Suppose that instead of making the pasta dinner in the home kitchen, the consumer decides to purchase it from a restaurant. Utility is ultimately derived from consuming the prepared meal. In this case, the consumer requires purchased goods (transportation to the restaurant and a pasta dinner ordered from the menu). The consumer must also invest time to enjoy the meal. Human capital in the case of a restaurant meal involves knowledge about quality and service of competing restaurants and related products that go along with the meal (e.g., a suitable beverage or appetizer that complements the main course). Even though a restaurant meal is not “homemade”, it could easily conceptualize it within the household production model.
The formal elements of the Becker model include a utility function:
\(U = f[(hh \: produced \: goods), \: (leisure \: time)]\)
The consumer maximizes utility subject to:
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A hh production function:
\(hh \: goods = g[(time \: in \: hh \: production), \: (market \: goods), \: (human \: capital)]\)
- Income-use constraint:
\(money \: income \geq spending \: on \: market \: goods\)
- Income-source constraint:
\(money \: income = (wage) \times (time \: in \: labor \: force) + (other \: income)\)
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Time-use constraint:
\(total \: time = (time \: in \: hh \: production) + (time \: in \: labor \: force) + (leisure \: time)\)
A main advantage of Becker’s model is that it incorporates the value of the consumer’s time. The income-use constraint in the Becker model is essentially the same as in the neoclassical model. The consumer cannot spend more on purchased inputs than his or her available income. However, the model differs in that it incorporates where the consumer gets income (the income-source constraint) along with the potential uses for the consumer’s time. The income-use, income-source, and time-use constraints can be combined into one overall constraint known as the full time-income constraint below.
\((wage) \times (total \: time) + (other \: income) \geq (wage) \times (time \: in \: hh \: production) + (wage) \times (leisure \: time) + (spending \: on \: market \: goods)\)
The left side of the full time-income constraint represents income potential. The right side of the full time-income constraint represents how income potential is used.
A key insight from Becker’s model for food marketing is that time spent in the kitchen has a very real cost. Many consumers are spending more time in the workforce to generate income. They are using this income to save time in household production by buying goods that require minimal preparation. Senauer, Asp, and Kinsey (1991) make a distinction between time-intensive goods and expenditure-intensive goods. A cake from the bakery costs more money than a couple of cups of flour, vegetable oil, eggs, and a bit of baking powder and cocoa. However, when you consider the opportunity cost of making a cake from scratch, the bakery cake might be the cheapest way to obtain this good. In this example, the bakery cake is an expenditure-intensive good while the raw ingredients to make a cake from scratch are time-intensive goods.
One of the best examples of Becker’s model in action is the growth in food-away-from-home expenditures (the overwhelming majority of which is accounted for by food consumed at restaurants) relative to growth in food purchased for at-home consumption. Figure \(\PageIndex{1}\) shows these data from 1970 through 2014. In 2014 food-away from home expenditures actually surpassed food-at-home expenditures. Insights from Becker’s model are also reflected in the product assortments contained in supermarkets. New or recently renovated supermarkets tend to have larger deli and prepared food sections.