In this chapter, an intertemporal, general equilibrium model is developed. I assume the existence of a household intertemporal utility function of a particular form and use the corresponding derived expenditure functions to estimate the unknown parameters of the utility function. I compare the household's consumption pattern with participation in a housing program to the pattern given termination of the housing program, and estimate the size of the unrestricted cash grant that is utility equivalent to participation.

The model is based on the theory of intertemporal consumer demand originally developed by Fisher (1954) and Hicks (1946) and extended in Henderson and Quandt (1971), Malinvaud (1972), and Phlips (1974). Section 3.1 presents an overview of the intertemporal consumer theory underlying the model. The model is described in Section 3.2; in Section 3.3 the benefit measure is derived; and in Section 3.4 the method for estimating changes in consumption patterns is described.

An overview of intertemporal consumer theory

In traditional single-period consumer demand analysis, a representative consumer is assumed to spend his entire income during the current period and to maximize a utility function that depends only on the commodities consumed during that period. This approach considers consumers to be “myopic.” It assumes that the consumer ignores the fact that he is going to continue to purchase and consume in future periods. It is important to realize that a consumer's current decisions are not based solely on his perception of present realities but are also determined by expectations of the future.