Individual welfare analysis for collective households

Laurens Cherchye, Sam Cosaert, Bram de Rock, Pieter Jan T Kerstens, Frederic Vermeulen

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Abstract

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 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 a simulation analysis and an empirical application to labor supply data.
Original languageEnglish
PublisherDepartment of Economics, KU Leuven
Number of pages37
Publication statusPublished - 2017
SeriesDiscussion Paper Series, Department of Economics KU Leuven
NumberDPS17.16

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