Abstract

In this paper, starting from the two-sector Uzawa-Lucas model, we study a three-sector endogenous growth model with leisure services. By extending the endogenous growth model with leisure developed by Ladrón-de Guevara et al. [1999], our model generalizes the standard time allocation problem, in that it explicitly accounts for the way total time is allocated between work, education, purely free time and time spent on leisure services, where the latter represents therefore an additional time-consuming activity. Accordingly, service consumption is tied to a production sector for leisure services in our model. We fully characterize Balanced Growth Path (BGP) equilibria in terms of time allocation and growth, and show that multiple BGPs are possible. Since service production plays an important role in economic development, we carry out a comparative analysis of the dynamic performance of different economic systems - Post-Industrial Economy vs. Service Economy - along a BGP.