Family Productivity, Labor Supply, and Welfare in a Low Income Country

This paper develops an analytical approach to estimating family labor supply and consumption decisions appropriate for developing countries. The model identifies structural relationships allowing analysis of the welfare implications of intrahousehold allocation decisions, especially across the generations. The approach allows for an arbitrary number of family members, each of whom may or may not engage in multiple activities. We identify the marginal returns to work in self-employment without directly observing the marginal returns or estimating the enterprise's production function. The key feature of the approach is to work with underlying structural marginal return and marginal rate of substitution functions together with first order Kuhn-Tucker conditions. We use this model to analyze family consumption and labor supply decisions of rural landholding households in Peru.