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Confronting the Representative Consumer with Household-Size Heterogeneity

  • Christos Koulovatianos
  • Carsten Schröder
  • Ulrich Schmidt

Much analysis in macroeconomics empirically addresses economy-wide incentives behind consumer/investment choices by using insights from the way a single representative household would behave. Heterogeneity at the micro level can jeopardize attempts to back up the representative consumer construct with microfoundations. One complex aspect of micro-level heterogeneity is household size, as individuals living in multi-member households have the potential to share goods within the household, benefiting from household-size economies. Theoretically, we show that validating the role of a representative consumer would require that the way individuals benefit from intra-household sharing is strictly aligned across the rich and the poor: once expenditures for subsistence needs are subtracted from disposable household income, household-size economies the remainder (discretionary) household incomes entail must be the same across the rich and the poor. We have designed a survey method that allows the testing of this stringent property of intra-household sharing and find that it holds.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1056.

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Length: 49 , Anh. p.
Date of creation: 2010
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Handle: RePEc:diw:diwwpp:dp1056
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