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Noncooperative household consumption with caring

  • Laurens CHERCHYE
  • Thomas DEMUYNCK
  • Bram DE ROCK

We present a household consumption model that accounts for caring household members, while allowing for noncooperative behavior in decisions on public goods. The intrahousehold consumption outcome critically depends on the degree of caring between the household members. By varying the degree of intrahousehold caring, the model encompasses a whole continuum of household consumption models that are situated between the fully cooperative model and the noncooperative model without caring. This feature is used to define a measure for the degree of cooperation within the household. We also establish a dual characterization of our noncooperative model with caring preferences: we show that the model is dually equivalent to a noncooperative model with non-caring preferences that is characterized by intrahousehold transfers. Finally, following a revealed preference approach, we derive testable implications of the model for empirical data. We demonstrate the practical usefulness of the model through an illustrative application.

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Paper provided by KU Leuven, Faculty of Economics and Business, Department of Economics in its series Working Papers Department of Economics with number ces10.34.

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Date of creation: Dec 2010
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Handle: RePEc:ete:ceswps:ces10.34
Contact details of provider: Web page: http://feb.kuleuven.be/Economics/

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