Housing, home production, and the equity- and value-premium puzzles

Morris A. Davis, Robert F. Martin

Research output: Contribution to journalArticlepeer-review

14 Scopus citations


We ask if a standard representative agent model with a home-production sector can resolve the equity-premium or value-premium puzzles. In the model, agents value market (numeraire) consumption and a home consumption good that is produced from the stock of housing, home labor, and a labor-augmenting technology shock. We construct the unobserved quantity of the home consumption good by combining observed data on numeraire consumption, hours worked in the marketplace, and rents paid on housing with restrictions of the model. We test the first-order conditions of the model using GMM. The model is rejected by the data; it cannot explain either the historical equity-premium or the value-premium.

Original languageEnglish (US)
Pages (from-to)81-91
Number of pages11
JournalJournal of Housing Economics
Issue number2
StatePublished - Jun 2009
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


  • Equity-premium
  • House prices
  • Housing
  • Value-premium


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