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NEW The "Make vs. Buy" Decision for Pumpkin Spice Lattes READ HERE

You don't have to be Williamson, Coase or Demsetz, to ponder whether households should make their own Pumpkin Spice Lattes or buy one from Starbucks for $5.  This article says that the raw ingredients cost 40 cents.     Assuming that the homemade and the Starbucks Pumpkin Lattes taste the same, then the key input is the person's time to buy the latte ingredients and make the latte versus going to the Starbucks to wait and order it.

Define t1 = average minutes to buy ingredients at a store and make a homemade Latte.

Define t2 = average minutes to travel to Starbucks and order and wait for your Latte.

Define w = your wage per minute (i.e your value of time).

Becker's Value of time model predicts that you will go to Starbucks if:

w*t1   + .4   is greater than  w*t2 + 5

This would be a pretty good Ph.D topic on household production versus the market.

To be serious, note that in a diverse population -- people differ with respect to their w, t1 and t2.  A statistician could collect data on the joint distribution of these 3 continuous variables.   For example, my wage is over $10 per hour, it would take me about 90 minutes to make my own Latte and I'm a 12 minute walk from the closest Starbucks.

Using micro data, a researcher who observes the distribution of f(w,t1,t2) could look at the joint distribution of these variables for 47 year old PhDs and see if the simple model listed about predicts actual choices over whether this subset of people do engage in cost minimization in deciding whether to buy or make their own Latte.  That's how we test theories!!

I am assuming that you can learn how to make the Pumpkin Latte at zero cost. If there is a human capital investment to figuring this out, then this would become a dynamic model where you pay upfront fixed costs in Pumpkin Latte "tuition" and this allows you to make low cost Lattes at home in the future.  We would need an estimate of how many Lattes you will drink over your lifetime and calculate the present discounted value of these saved "operating costs".

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