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Children and Demand: Direct and Non-Direct Effects

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  • Valerie Lechene
  • Martin Browning

Abstract

It is universally accepted that children have important effects on household demand patterns. This is usually attributed to the direct effect of children; for example children are food intensive. Alternative inferences are that the observed correlations between children and demand patterns are due to non-direct effects, such as fixed effects, state dependence or intra-household effects. These non-direct effects make the consistent estimation of direct effects problematic. We employ a French family expenditure survey that has a number of unusual features to explore the source of the correlation between children and demands. In a first set of tests, we use a sample of older households (over-55`s) for whom we have the details of their completed fertility and whether or not they currently have children living at home. We consider only those who do not have children currently living at home. If there are only direct effects then the demand patterns of those who have had children should be the same as those who never had children. We find that this is not the case. For the second set of tests, we use a sample of couples aged up to 55 and test for the exogeneity of children variables using background variables as instruments for children. We find that children are not exogenous for some goods. These two findings together cast doubt on the usual practice of identifying direct children effects with the coefficients on the children variables in demand equations.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 16.

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Date of creation: 01 Jul 2002
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Handle: RePEc:oxf:wpaper:16

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Keywords: children; demand; fixed effects; state dependence; intra-household effects;

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References

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  1. Thomas Mroz, . "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," University of Chicago - Population Research Center 84-8, Chicago - Population Research Center.
  2. 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.
  3. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, September.
  4. V. Joseph Hotz & Robert A. Miller, . "An Empirical Analysis of Life Cycle Fertility and Female Labor Supply," University of Chicago - Population Research Center 86-15, Chicago - Population Research Center.
  5. Lewbel, Arthur, 1985. "A Unified Approach to Incorporating Demographic or Other Effects into Demand Systems," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 1-18, January.
  6. Browning, Martin, 1992. "Children and Household Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1434-75, September.
  7. Gronau, Reuben, 1988. "Consumption Technology and the Intrafamily Distribution of Resources:," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1183-1205, December.
  8. Cain, Glen G & Dooley, Martin D, 1976. "Estimation of a Model of Labor Supply, Fertility, and Wages of Married Women," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S179-99, August.
  9. Deaton, Angus S & Muellbauer, John, 1986. "On Measuring Child Costs: With Applications to Poor Countries," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 720-44, August.
  10. Dickens, Richard & Fry, Vanessa & Pashardes, Panos, 1993. "Non-linearities and Equivalence Scales," Economic Journal, Royal Economic Society, vol. 103(417), pages 359-68, March.
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Cited by:
  1. Lyn Craig, 2006. "Where Do They Find the Time?: An Analysis of How Parents Shift and Squeeze Their Time around Work and Child Care," Economics Working Paper Archive wp_439, Levy Economics Institute.
  2. Martina Kirchberger, 2014. "Preferences over Leisure and Consumption of Siblings and Intra-Household Allocation," Economics Series Working Papers 713, University of Oxford, Department of Economics.
  3. Laura Blow & Valérie Lechene & Peter Levell, 2014. "Using the CE to Model Household Demand," NBER Chapters, in: Improving the Measurement of Consumer Expenditures National Bureau of Economic Research, Inc.
  4. Lyn Craig, 2007. "How Employed Mothers in Australia Find Time for Both Market Work and Childcare," Journal of Family and Economic Issues, Springer, vol. 28(1), pages 69-87, March.
  5. Christophe Kolodziejczyk, 2006. "A Note on the Correlated Random Coefficient Model," CAM Working Papers 2006-10, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  6. Christophe Kolodziejczyk, 2006. "Retirement and Fixed Costs to Work: An Empirical Analysis," CAM Working Papers 2006-09, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.

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