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Endogeneous Household Interaction

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  • Daniela Del Boca
  • Christopher Flinn

Abstract

Most econometric models of intrahousehold behavior assume that household decisionmaking is efficient, i.e., utility realizations lie on the Pareto frontier. In this paper we investigate this claim by adding a number of participation constraints to the household allocation problem. Short-run constraints ensure that each spouse obtains a utility level at least equal to what they would realize under (inefficient) Nash equilibrium. Long-run constraints ensure that each spouse obtains a utility level equal to a least what they would realize by cheating on the efficient allocation and receiving Nash equilibrium payoffs in all successive periods. Given household characteristics and the (common) discount factor of the spouses, not all households may be able to attain payoffs on the Pareto frontier. We estimate these models using a Method of Simulated Moments estimator and data from one wave of the Panel Study of Income Dynamics. We find that the model with long-run participation constraint fits the data best, and that 6 percent of sample households are not able to attain efficient outcomes. To meet the long-run participation constraint, over 90 percent of "efficient" households are required to modify the ex ante Pareto weight of 0.5 for each spouse assumed to apply to all households.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 109.

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Length: 53 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:cca:wpaper:109

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Keywords: Household Time Allocation; Grim Trigger Strategy; Household Production; Method of Simulated Moments;

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References

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Cited by:
  1. Volker Meier & Helmut Rainer, 2012. "Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples," CESifo Working Paper Series 3966, CESifo Group Munich.
  2. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2012. "Economic well-being and poverty among the elderly: an analysis based on a collective consumption model," ULB Institutional Repository 2013/131702, ULB -- Universite Libre de Bruxelles.
  3. Reinhold, Steffen & Kneip, Thorsten & Bauer, Gerrit, 2011. "The Long Run Consequences of Unilateral Divorce Laws on Children –Evidence from SHARELIFE," MEA discussion paper series 11240, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  4. Fernández, Raquel & Wong, Joyce Cheng, 2011. "The Disappearing Gender Gap: The Impact of Divorce, Wages, and Preferences on Education Choices and Women's Work," IZA Discussion Papers 6046, Institute for the Study of Labor (IZA).
  5. Shannon Seitz & Aloysius Siow & Eugene Choo, 2010. "The Collective Marriage Matching Model: Identification, Estimation and Testing," 2010 Meeting Papers 267, Society for Economic Dynamics.
  6. Daniela del Boca & Christopher Flinn, 2012. "Household Behavior and the Marriage Market," Working Papers 2012-013, Human Capital and Economic Opportunity Working Group.
  7. Raquel Fernández & Joyce Cheng Wong, 2011. "The Disappearing Gender Gap: The Impact of Divorce, Wages, and Preferences on Education Choices and Women's Work," NBER Working Papers 17508, National Bureau of Economic Research, Inc.
  8. Alessandra Voena, 2011. "Yours, Mine and Ours: Do Divorce Laws Affect the Intertemporal Behavior of Married Couples?," Discussion Papers 10-022, Stanford Institute for Economic Policy Research.
  9. Fernández, Raquel & Wong, Joyce Cheng, 2011. "The Disappearing Gender Gap: The Impact of Divorce, Wages, and Preferences on Education Choices and Women's Work," CEPR Discussion Papers 8627, C.E.P.R. Discussion Papers.
  10. Eugene Choo & Shannon Seitz & Aloysuis Siow, 2008. "The Collective Marriage Matching Model: Identification, Estimation and Testing," Boston College Working Papers in Economics 704, Boston College Department of Economics.

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