Anticipation in leisure—Effects on labor-leisure choice

Abstract

This paper introduces the idea of a forward-looking reference benchmark on both consumption and leisure in the context of a Ramsey–Cass–Koopmans growth model by assuming that in addition to consumption and leisure the household utility also depends on reference benchmarks of future anticipated consumption and leisure. We analyze the macrodynamic equilibrium, contrasting it to the case when the reference benchmarks are backward-looking. We investigate if the presence of anticipation in leisure can lead to smoother jumps in labor under productivity shocks and what effect that has on the consumption adjustment at the time of shock. We present our results using numerical simulations that confirm the existence of parameter spaces where a dual anticipation model leads to smaller jumps in labor, albeit sometimes at the expense of higher consumption jumps.