Unobserved Inputs in Household Production

61 Pages Posted: 25 Apr 2017

See all articles by Sergey Mityakov

Sergey Mityakov

Clemson University - John E. Walker Department of Economics; Florida State University - Department of Finance

Thomas A. Mroz

Department of Economics, Andrew Young School of Policy Studies

Date Written: March 20, 2017

Abstract

With few exceptions, empirical household production studies ignore unobserved inputs. We demonstrate that without additional assumptions, the estimable impacts of the observed inputs cannot provide informative estimates of their marginal products due to contaminating variation in unobserved inputs; not even the sign of marginal impacts can be ascertained. Instrumental variables cannot solve this problem since every candidate for an instrument affecting an observed input, including experimental assignments, would also affect unobserved inputs choices through the budget constraint, invalidating this variable as an instrument. We show that under certain additional assumptions an appropriately specified empirical model can provide bounds for true marginal products. Our main point is that unless one is willing to make assumptions of this nature, estimated effects would have no useful interpretation. Almost all existing empirical studies of health, child development, and job-training programs fail to account for this issue, rendering their conclusions incomplete and possibly misleading.

Keywords: Household Production, Model Construction and Evaluation

Suggested Citation

Mityakov, Sergey and Mroz, Thomas A., Unobserved Inputs in Household Production (March 20, 2017). Andrew Young School of Policy Studies Research Paper Series No. 17-04. Available at SSRN: https://ssrn.com/abstract=2957741 or http://dx.doi.org/10.2139/ssrn.2957741

Sergey Mityakov

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

HOME PAGE: http://people.clemson.edu/~smityak/

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States

Thomas A. Mroz (Contact Author)

Department of Economics, Andrew Young School of Policy Studies ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

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