General Equilibrium in the Presence of Time Costs

Abstract:     
If consumption takes time, and time is limited, there exists a time constraint in addition to the expenditure constraint of a consumer. This may lead to a form of satiation, where consumers cannot consume all commodities they purchase. We establish existence of competitive equilibrium in the presence of a time constraint and recover a version of the first and second welfare theorem. While all equilibria are weakly Pareto-optimal, they may fail to be strongly Pareto-optimal: taking from satiated consumers and giving to non-satiated consumers increases social welfare. We give an example with identical consumers, where equal share is the only strongly Pareto-optimal allocation and should be chosen by a planner maximizing social welfare. We also suggest a simple explanation for the Easterlin Paradox.

Number of Pages in PDF File: 27

Keywords: Easterlin Paradox, time, time use, time costs, time constraint, equilibrium, consumer theory, Pareto-optimality

JEL Classification: C62, D11, D51, D61, D63

working papers series