Individual Welfare Analysis for Collective Households

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 Classification: D11, D12, D13, C14

Suggested Citation: Suggested Citation

Cherchye, Laurens and Cosaert, Sam and De Rock, Bram and Kerstens, Pieter Jan and Vermeulen, Frederic, Individual Welfare Analysis for Collective Households (November 17, 2017). KU LEUVEN - Discussion Paper Series, DPS17.16, November 2017, Available at SSRN: https://ssrn.com/abstract=3082362 or http://dx.doi.org/10.2139/ssrn.3082362