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Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment

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MAURIZIO MAZZOCCO

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Abstract

In this paper, a formal test of intra-household commitment is derived and performed. To that end, two models of household intertemporal behaviour are developed. In both models, household members are characterized by individual preferences. In the first formulation, household decisions are always on the "ex ante "Pareto frontier. In the second model, the assumption of intra-household commitment required by "ex ante "efficiency is relaxed. It is shown that the full-efficiency household Euler equations are nested in the no-commitment Euler equations. Using this result, the hypothesis that household members can commit to future allocations of resources is tested using the Consumer Expenditure Survey. I strongly reject this hypothesis. It is also shown that the standard unitary framework is a special case of the full-efficiency model. However, if household members are not able to commit, household intertemporal behaviour cannot be characterized using the standard life-cycle model. These findings have two main implications. First, policy makers can change household behaviour by modifying the decision power of individual household members. Second, to evaluate programmes designed to improve the welfare of household members, it would be beneficial to replace the standard unitary model with a characterization of household behaviour that allows for lack of commitment. Copyright 2007 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2007.00447.x
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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 74 (2007)
Issue (Month): 3 (07)
Pages: 857-895
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Handle: RePEc:bla:restud:v:74:y:2007:i:3:p:857-895

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  2. Pierre-Carl Michaud & Frederic Vermeulen, 2006. "A Collective Labor Supply Model: Identification and Estimation in the Presence of Externalities by Means of Panel Data," Working Papers 406, RAND Corporation Publications Department. [Downloadable!]
  3. Dauphin, Anyck & El Lahga, AbdelRahmen & Fortin, Bernard & Lacroix, Guy, 2008. "Are Children Decision-Makers Within the Household?," IZA Discussion Papers 3728, Institute for the Study of Labor (IZA). [Downloadable!]
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  4. Sonia Oreffice, 2007. "Did the legalization of abortion increase women’s household bargaining power? Evidence from labor supply," Review of Economics of the Household, Springer, vol. 5(2), pages 181-207, June. [Downloadable!] (restricted)
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  11. Richard Blundell & Pierre-André Chiappori & Thierry Magnac & Costas Meghir, 2005. "Collective Labour Supply: Heterogeneity and Nonparticipation," IZA Discussion Papers 1785, Institute for the Study of Labor (IZA). [Downloadable!]
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  12. Tessa Bold, 2008. "Implicationsof Endogenous Group Formation for Efficient Risk-Sharing," Economics Series Working Papers 387, University of Oxford, Department of Economics. [Downloadable!]
  13. Iyigun, Murat, 2009. "Marriage, Cohabitation and Commitment," IZA Discussion Papers 4341, Institute for the Study of Labor (IZA). [Downloadable!]
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