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Endogenous household interaction

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  • Del Boca, Daniela
  • Flinn, Christopher

Abstract

Most econometric models of intrahousehold behavior assume that household decision making 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 at least equal to 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 both short- and long-run constraints are binding for sizable proportions of households in the sample. We conclude that it is important to carefully model the constraint sets household members face when modeling household allocation decisions, and to allow for the possibility that efficient outcomes may not be implementable for some households.

Suggested Citation

  • Del Boca, Daniela & Flinn, Christopher, 2012. "Endogenous household interaction," Journal of Econometrics, Elsevier, vol. 166(1), pages 49-65.
  • Handle: RePEc:eee:econom:v:166:y:2012:i:1:p:49-65
    DOI: 10.1016/j.jeconom.2011.06.005
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    Cited by:

    1. Matthias Doepke & Michèle Tertilt, 2010. "Does Female Empowerment Promote Economic Development?," Working Papers id:3189, eSocialSciences.
    2. repec:eme:ceapzz:s0573-855520140000293006 is not listed on IDEAS
    3. Volker Meier & Helmut Rainer, 2012. "Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples," CESifo Working Paper Series 3966, CESifo Group Munich.
    4. François Cochard & Hélène Couprie & Astrid Hopfensitz, 2016. "Do spouses cooperate? An experimental investigation," Review of Economics of the Household, Springer, vol. 14(1), pages 1-26, March.
    5. Edwards, Ryan D. & Roff, Jennifer, 2016. "What mom and dad’s match means for junior: Marital sorting and child outcomes," Labour Economics, Elsevier, vol. 40(C), pages 43-56.
    6. Eugene Choo & Shannon Seitz & Aloysius Siow, 2008. "The Collective Marriage Matching Model: Identification, Estimation and Testing," Working Papers tecipa-340, University of Toronto, Department of Economics.
    7. Evangelia Papapetrou & Pinelopi Tsalaporta, 2017. "Is there a case for intergenerational transmission of female labour force participation and educational attainment? Evidence from Greece during the crisis," Working Papers 223, Bank of Greece.
    8. Cherchye, Laurens & De Rock, Bram & Vermeulen, Frederic, 2012. "Economic well-being and poverty among the elderly: An analysis based on a collective consumption model," European Economic Review, Elsevier, vol. 56(6), pages 985-1000.
    9. Nicolas Jacquemet & Jean-Marc Robin, 2011. "Marriage with Labor Supply," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01073728, HAL.
    10. Anderberg, Dan & Rainer, Helmut, 2013. "Economic abuse: A theory of intrahousehold sabotage," Journal of Public Economics, Elsevier, vol. 97(C), pages 282-295.
    11. 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).
    12. 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.
    13. Meier, Volker & Rainer, Helmut, 2015. "Pigou meets Ramsey: Gender-based taxation with non-cooperative couples," European Economic Review, Elsevier, vol. 77(C), pages 28-46.
    14. Chandra Bhat & Konstadinos Goulias & Ram Pendyala & Rajesh Paleti & Raghuprasad Sidharthan & Laura Schmitt & Hsi-Hwa Hu, 2013. "A household-level activity pattern generation model with an application for Southern California," Transportation, Springer, vol. 40(5), pages 1063-1086, September.
    15. Del Boca, Daniela & Flinn, Christopher J., 2014. "Household behavior and the marriage market," Journal of Economic Theory, Elsevier, vol. 150(C), pages 515-550.
    16. Steffen Reinhold & Thorsten Kneip & Gerrit Bauer, 2013. "The long run consequences of unilateral divorce laws on children—evidence from SHARELIFE," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1035-1056, July.
    17. Raquel Fernández & Joyce C. Wong, 2014. "Divorce Risk, Wages, and Working Wives: A Quantitative Life-Cycle Analysis of Female Labor Force Participation," NBER Working Papers 19869, National Bureau of Economic Research, Inc.
    18. Christopher Flinn & Petra Todd & Weilong Zhang, 2017. "Personality Traits, Intra-household Allocation and the Gender Wage Gap," Working Papers 2017-029, Human Capital and Economic Opportunity Working Group.
    19. Eugene Choo & Shannon Seitz & Aloysius Siow, 2008. "The Collective Marriage Matching Model: Identification, Estimation and Testing," Working Papers tecipa-340, University of Toronto, Department of Economics.
    20. Kim, Changjoo & Parent, Olivier, 2016. "Modeling individual travel behaviors based on intra-household interactions," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 1-11.
    21. 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.
    22. 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.
    23. Jean-Marie Baland & Roberta Ziparo, 2017. "Intra-household bargaining in poor countries," WIDER Working Paper Series 108, World Institute for Development Economic Research (UNU-WIDER).
    24. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis,in: Handbook of Microsimulation Modelling, volume 127, pages 167-221 Emerald Publishing Ltd.

    More about this item

    Keywords

    Household time allocation; Grim trigger strategy; Household production; Endogenous mixing distribution;

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D19 - Microeconomics - - Household Behavior - - - Other
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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