Introducing home production in a life-cycle model

The consumption good in the model of Van Erp and De Hek is substituted with a composite consumption good that consists of goods directly purchased at the market and goods that are produced at home. For the latter goods we also assume that inputs have to be bought in the market.

With this adjusted model, we analyze what the effects on labour supply, wealth and consumption patterns are. Surprisingly, the introduction of home production results in more accumulation of wealth.