In DSGE models, utility function contains labor disutility components. But I cannot not see how labor disutility is incorporated in Arrow-Debreu-Mackenzie model.


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In the Arrow-Debreu model, households are endowed with some commodities, producers can use feasible production plans to transform commodities, and households ultimately consume commodities - which they choose optimally given their preferences subject to budget constraints.

These commodities can include (potentially time and state-contingent) labor services provided by households. In this framework, provision of labor can simply be viewed as a form of negative consumption, which decreases utility but provides earnings that can be spent elsewhere. Indeed, the original Arrow-Debreu paper mentions this interpretation several times. For instance, on page 268 when they describe households in the model (which they call "consumption units"):

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