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Revisiting the Effect of Household Size on Consumption Over the Life-Cycle

  • Bick, Alexander
  • Choi, Sekyu

Although the link between household size and consumption has a strong empirical support, there is no consistent way in which demographics are dealt with in standard life-cycle models. We study the relationship between the predictions of the Single Agent model (the standard in the literature) versus a simple model extension where deterministic changes in household size and composition affect optimal consumption decisions. We provide theoretical results comparing both approaches and quantify the differences in predictions across models.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41756.

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Date of creation: Oct 2012
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Handle: RePEc:pra:mprapa:41756
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