Optimal Consumption when Consumption Takes Time

Abstract

A classic article by Gary Becker (1965) showed that when it takes time to consume, the first order conditions for optimal consumption require the marginal rate of substitution between any two goods to equal their relative full costs. These include the direct money price and the money value of the time needed to consume each good. This important conclusion has generally been ignored in textbooks. The present author calls attention to this topic by deriving Becker's conclusions within a simple two good framework. Then, he extends his work by showing that Becker's first order conditions are unlikely to be relevant if one drops Becker's strong assumption that time spent working (and, thus, money income) and time available for consuming are chosen endogenously by consumers.

Keywords:

• consumption
• full costs
• full income
• time