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Opening the Black Box of Intra-Household Decision-Making: Theory and Non-Parametric Empirical Tests of General Collective Consumption Models

  • Cherchye, Laurens

    ()

    (KU Leuven)

  • De Rock, Bram

    ()

    (ECARES, Free University of Brussels)

  • Vermeulen, Frederic

    ()

    (KU Leuven)

We non-parametrically test a general collective consumption model with public consumption and externalities inside the household. We further propose a novel approach to model special cases of the general collective model. These special cases include alternative restrictions on the 'sharing rule' that applies to each household, and which defines the distribution of the household budget over the household members. A limiting case is the unitary model. Our application uses data from the Russia Longitudinal Monitoring Survey (RLMS); the panel structure of this data set allows non-parametric testing of the behavioral models without relying on preference homogeneity assumptions across similar individuals. This application includes test results but also a power analysis for different specifications of the collective consumption model. Our main findings are that the most general collective model, together with a large class of special but still fairly general cases, cannot be rejected by the data, while other, restricted, versions of the general model, including the unitary alternative, are rejected. Since these tests are entirely non-parametric, this provides strong evidence in favor of models focusing on intra-household decision-making.

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File URL: http://ftp.iza.org/dp1603.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1603.

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Length: 29 pages
Date of creation: May 2005
Date of revision:
Publication status: published in: Journal of Political Economy, 2009, 117 (6), 1074 - 1104
Handle: RePEc:iza:izadps:dp1603
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  1. Browning, M. & Chiappori, P.A., 1994. "Efficient Intra-Household allocations: A General Characterization and Empirical Tests," DELTA Working Papers 94-16, DELTA (Ecole normale supérieure).
  2. Cherchye, Laurens & Vermeulen, Frederic, 2006. "Nonparametric Analysis of Household Labor Supply: Goodness-of-Fit and Power of the Unitary and the Collective Model," IZA Discussion Papers 2004, Institute for the Study of Labor (IZA).
  3. Richard W. Blundell & Martin Browning & Ian A. Crawford, 2003. "Nonparametric Engel Curves and Revealed Preference," Econometrica, Econometric Society, vol. 71(1), pages 205-240, January.
  4. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  5. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  6. Frederic Vermeulen, 2005. "And the winner is... An empirical evaluation of unitary and collective labour supply models," Empirical Economics, Springer, vol. 30(3), pages 711-734, October.
  7. Richard Blundell & Martin Browning & Ian Crawford, 2005. "Best nonparametric bounds on demand responses," CeMMAP working papers CWP12/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  8. Hal R. Varian, 1983. "Non-parametric Tests of Consumer Behaviour," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 99-110.
  9. Martin Browning & Pierre-André Chiappori & Arthur Lewbel, 2013. "Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1267-1303.
  10. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  11. Cherchye, L.J.H. & de Rock, B. & Vermeulen, F.M.P., 2007. "The collective model of household consumption : A nonparametric characterization," Other publications TiSEM 0a104373-4fb6-4ef2-9d2b-2, Tilburg University, School of Economics and Management.
  12. Susan K. Snyder, 2000. "Nonparametric Testable Restrictions of Household Behavior," Southern Economic Journal, Southern Economic Association, vol. 67(1), pages 171-185, July.
  13. Fortin, B. & Lacroix, G., 1993. "A Test of the Neoclassical and Collective Models of Household Labour Supply," Papers 9335, Laval - Recherche en Politique Economique.
  14. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-67, June.
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