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Opening the Black Box of Intra-Household Decision-Making: Theory and Non-Parametric Empirical Tests of General Collective Consumption Models

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Author Info

  • Cherchye, Laurens

    ()
    (K.U.Leuven)

  • De Rock, Bram

    ()
    (ECARES, Free University of Brussels)

  • Vermeulen, Frederic

    ()
    (Tilburg University)

Abstract

We non-parametrically test a general collective consumption model with public consumption and externalities inside the household. We further propose a novel approach to model special cases of the general collective model. These special cases include alternative restrictions on the 'sharing rule' that applies to each household, and which defines the distribution of the household budget over the household members. A limiting case is the unitary model. Our application uses data from the Russia Longitudinal Monitoring Survey (RLMS); the panel structure of this data set allows non-parametric testing of the behavioral models without relying on preference homogeneity assumptions across similar individuals. This application includes test results but also a power analysis for different specifications of the collective consumption model. Our main findings are that the most general collective model, together with a large class of special but still fairly general cases, cannot be rejected by the data, while other, restricted, versions of the general model, including the unitary alternative, are rejected. Since these tests are entirely non-parametric, this provides strong evidence in favor of models focusing on intra-household decision-making.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1603.

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Length: 29 pages
Date of creation: May 2005
Date of revision:
Publication status: published in: Journal of Political Economy, 2009, 117 (6), 1074 - 1104
Handle: RePEc:iza:izadps:dp1603

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Related research

Keywords: revealed preferences; intra-household allocation; collective household models; non-parametric analysis;

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References

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  1. M. Browning & P. A. Chiappori, 1998. "Efficient Intra-Household Allocations: A General Characterization and Empirical Tests," Econometrica, Econometric Society, vol. 66(6), pages 1241-1278, November.
  2. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-67, June.
  3. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  4. Martin Browning & Pierre-Andrée Chiappori & Arthur Lewbel, 2004. "Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power," Boston College Working Papers in Economics 588, Boston College Department of Economics, revised 01 Sep 2010.
  5. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  6. James Andreoni & William T. Harbaugh, 2006. "Power Indices for Revealed Preference Tests," Levine's Bibliography 122247000000001257, UCLA Department of Economics.
  7. Susan K. Snyder, 2000. "Nonparametric Testable Restrictions of Household Behavior," Southern Economic Journal, Southern Economic Association, vol. 67(1), pages 171-185, July.
  8. Richard Blundell & Martin Browning & Ian Crawford, 1997. "Non-parametric Engel curves and revealed preferences," IFS Working Papers W97/14, Institute for Fiscal Studies.
  9. Fortin, B. & Lacroix, G., 1993. "A Test of the Neoclassical and Collective Models of Household Labour Supply," Papers 9335, Laval - Recherche en Politique Economique.
  10. Laurens Cherchye & Frederic Vermeulen, 2008. "Nonparametric Analysis of Household Labor Supply: Goodness of Fit and Power of the Unitary and the Collective Model," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 267-274, May.
  11. Richard Blundell & Martin Browning & Ian Crawford, 2005. "Best nonparametric bounds on demand responses," CeMMAP working papers CWP12/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  12. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2007. "The Collective Model of Household Consumption: A Nonparametric Characterization," Econometrica, Econometric Society, vol. 75(2), pages 553-574, 03.
  13. Vermeulen, F.M.P., 2005. "And the winner is..... An empirical evaluation of unitary and collective labour supply models," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194165, Tilburg University.
  14. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  15. Varian, Hal R, 1983. "Non-Parametric Tests of Consumer Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 99-110, January.
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