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Testing the Pareto Efficiency of Household Resource Allocations

  • Patricia Apps

    (University of Sydney and IZA)

  • Ray Rees

    (CES, University of Munich)

In a careful and thorough empirical study, Christopher Udry (1996) shows convincingly that, in a large sample of West African households, household resource allocations were not Pareto efficient. This paper argues that observation of the Pareto inefficiency of a household resource allocation does not, however, refute the hypothesis that it chooses this resource allocation as if it maximises some form of household welfare function possessing the Pareto property. To refute that hypothesis it is necessary to show that the observed allocation does not represent a second best optimum. For this it will be necessary to show that the estimated parameters of the model lie in a region of the parameter space for which the second best optimality of the allocation does not hold.

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Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.

Volume (Year): 13-14 (2010-2011)
Issue (Month): 2-1 (Winter-Summer)
Pages: 57-68

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Handle: RePEc:ekn:ekonom:v:13-14:y:2010-2011:i:2-1:p:57-68
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  1. Lundberg, S. & Pollak, R.A., 1991. "Separate Spheres Bargaining and the Marriage Market," Working Papers 91-08, University of Washington, Department of Economics.
  2. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," NBER Working Papers 13638, National Bureau of Economic Research, Inc.
  3. Apps, Patricia & Rees, Ray, 2007. "Cooperative Household Models," IZA Discussion Papers 3127, Institute for the Study of Labor (IZA).
  4. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February.
  5. McElroy, Marjorie B & Horney, Mary Jean, 1981. "Nash-Bargained Household Decisions: Toward a Generalization of the Theory of Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(2), pages 333-49, June.
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