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Nonparametric Analysis of Household Labour Supply: Goodness-of-Fit and Power of the Unitary and the Collective Model

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  • Laurens Cherchye

    ()

  • Frederic Vermeulen

    ()

Abstract

We compare the empirical performance of the unitary and the collective approach to modelling observed labour supply behaviour. Deviating from the mainstream literature, we conduct a nonparametric analysis, which avoids the distortive impact of an erroneously specified functional form for the preferences and/or the intrahousehold bargaining process. Our analysis specifically focuses on the goodness-of-fit of the two behavioural models. To guarantee a fair comparison, we complement this goodness-of-fit analysis with a power analysis. Our results strongly favour the collective approach to modelling the behaviour of multi-person households. More generally, they illustrate the usefulness of nonparametric testing tools for the empirical evaluation of theoretical behavioural models.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics in its series Public Economics Working Paper Series with number ces0302.

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Length: 19 pp.
Date of creation: 2003
Date of revision:
Handle: RePEc:wpe:papers:ces0302

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  1. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  2. Cherchye, L.J.H. & Rock, B. de & Vermeulen, F.M.P., 2004. "The Collective Model of Household Consumption: A Nonparametric Characterization," Discussion Paper 2004-76, Tilburg University, Center for Economic Research.
  3. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-67, June.
  4. Susan K. Snyder, 2000. "Nonparametric Testable Restrictions of Household Behavior," Southern Economic Journal, Southern Economic Association, vol. 67(1), pages 171-185, July.
  5. Cox, James C, 1997. "On Testing the Utility Hypothesis," Economic Journal, Royal Economic Society, vol. 107(443), pages 1054-78, July.
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  7. Browning, Martin & Francois Bourguignon & Pierre-Andre Chiappori & Valerie Lechene, 1994. "Income and Outcomes: A Structural Model of Intrahousehold Allocation," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1067-96, December.
  8. Pierre-Andre Chiappori & Bernard Fortin & Guy Lacroix, 2002. "Marriage Market, Divorce Legislation, and Household Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 37-72, February.
  9. Hal R. Varian, 1994. "Goodness-of-Fit for Revealed Preference Tests," Econometrics 9401001, EconWPA.
  10. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  11. 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.
  12. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  13. Theodore W. Schultz, 1962. "Reflections on Investment in Man," Journal of Political Economy, University of Chicago Press, vol. 70, pages 1.
  14. Famulari, Melissa, 1995. "A Household-Based, Nonparametric Test of Demand Theory," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 372-82, May.
  15. Afriat, S N, 1973. "On a System of Inequalities in Demand Analysis: An Extension of the Classical Method," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 460-72, June.
  16. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
  17. Fortin, Bernard & Lacroix, Guy, 1997. "A Test of the Unitary and Collective Models of Household Labour Supply," Economic Journal, Royal Economic Society, vol. 107(443), pages 933-55, July.
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