Individual Welfare Analysis for Collective Households
KU LEUVEN - Discussion Paper Series, DPS17.16, November 2017
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 non-parametric. We show how to identify individual money metric welfare indices from observed household demand, along with the intra-household 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.
|Keywords||Individual welfare, collective model, revealed preferences, sharing rule, money metric welfare index, identification, labor supply|
|JEL||Consumer Economics: Theory (jel D11), Consumer Economics: Empirical Analysis (jel D12), Household Production and Intrahousehold Allocation (jel D13), Semiparametric and Nonparametric Methods (jel C14)|
|Series||KU Leuven, Department of Economics, Discussion Paper Series|
Cherchye, L, Cosaert, S, de Rock, B, Kerstens, P.J, & Vermeulen, F. (2017). Individual Welfare Analysis for Collective Households (No. DPS17.16). KU Leuven, Department of Economics, Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/105632