Technology and leisure: Macro economic Implications

While the impact of technology on production is widely researched, this study explores
the economic implications of technology through the channel of enhancing leisure
experience on the consumer side. We develop a theoretical model which allows for habit
formation for a technology good purchased to enhance leisure activities. In contrast, for
the normal consumption good, habits are irrelevant. A persistent fall in the relative price
of the technology good and increased addiction to technology are shown to have
significant macroeconomic consequences. For example, we show that these
perturbations can drive the real interest rate below the rate of time preference and
depress consumption growth of non technology goods. Modelling the framework with US
data illustrates that model predictions of falling interest rates and consumption growth
are consistent with the recent observations of declining technology's relative prices and
increases in technology good purchases.