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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

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 approach 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 both a simulation exercise and an empirical application to labor supply data drawn from the Panel Study of Income Dynamics.

Original languageEnglish
JournalJournal of Public Economics
Volume166
Pages (from-to)98-114
Number of pages17
ISSN0047-2727
DOIs
Publication statusPublished - Oct 2018

    Research areas

  • Collective model, Identification, Individual welfare, Labor supply, Money metric welfare index, Revealed preferences, Sharing rule

ID: 202938057