The Wise Use of Leisure Time. An Endogenous Growth Model With Leisure Services

Abstract

In this paper, starting from the Uzawa-Lucas endogenous growth framework with production of physical and human capital, we develop and investigate a model with an additional sector for the production of leisure services. In turn, our three-sector model builds on and extends Ladrón-de Guevara et al. [1999] - where the utility function depends only on consumption of physical goods and on ‘pure’ leisure - by introducing consumption of leisure services. As the latter is a time- consuming activity, the model also generalizes the standard time allocation problem, in that total available time can be allocated among work, education, purely free time and leisure activities in our framework. We characterize analytically the Balanced Growth Paths of this general model, particularly in terms of time allocation and growth. We carry out a comparative analysis across different Service Economies that are supposed to be at their equilibrium, including an ‘Industrial Economy’ without service sector, as well across possibly multiple equilibria of the same economy. Part of the analysis is based on an intuitive yet rigorous framework for determining and representing Balanced Growth Paths in the space of time allocation decisions.