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Individual Welfare Analysis for Collective Households

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  • Laurens Cherchye
  • Sam Cosaert
  • Bram De Rock
  • Pieter Jan Kerstens
  • Frederic Vermeulen

Abstract

We propose novel tools for the analysis of individual welfare on the basis of aggregate household demand behavior. The method assumes a collective model of household consumption with the public and private nature of goods specified by the empirical analyst. A main distinguishing feature of our method is that it builds on a revealed preference characterization of the collective model that is intrinsically nonparametric. We show how to identify individual money metric welfare indices from observed household demand, along with the intrahousehold sharing rule and the individuals' willingness-to-pay for public consumption (i.e. Lindahl prices). The method is easy to use in practice and yields informative empirical results, which we demonstrate through a simulation analysis and an empirical application to labor supply data.

Suggested Citation

  • Laurens Cherchye & Sam Cosaert & Bram De Rock & Pieter Jan Kerstens & Frederic Vermeulen, 2017. "Individual Welfare Analysis for Collective Households," Working Papers ECARES ECARES 2017-44, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/261073
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    References listed on IDEAS

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    Cited by:

    1. Martin Browning & Laurens Cherchye & Thomas Demuynck & Bram De Rock & Frederic Vermeulen, 2021. "Stable marriage, household consumption and unobserved match quality," Working Papers of Department of Economics, Leuven 679647, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    2. Obermeier, Tim, 2022. "Individual Welfare Analysis: What's the Role of Intra-Family Preference Heterogeneity?," VfS Annual Conference 2022 (Basel): Big Data in Economics 264101, Verein für Socialpolitik / German Economic Association.
    3. Bárcena-Martín, Elena & Blázquez, Maite & Moro-Egido, Ana I., 2020. "The role of income pooling and decision-making responsibilities in material deprivation," Economic Modelling, Elsevier, vol. 87(C), pages 416-428.
    4. Klein, Matthew J. & Barham, Bradford L., 2018. "Point Estimates of Household Bargaining Power Using Outside Options," Staff Paper Series 590, University of Wisconsin, Agricultural and Applied Economics.

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    More about this item

    Keywords

    individual welfare; collective model; revealed preferences; sharing rule; money metric welfare index; identification; labor supply;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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