Economies of Scale in the Household: Puzzles and Patterns from the American Past

Abstract

Household economies of scale arise when households with multiple members share public goods, making larger households better off at lower per capita expenditures. While estimates of household economies of scale are critical for measuring income and living standards, we do not know how these scale economies change over time. I use American household expenditure surveys to produce the first comparable historical estimates of household scale economies. I find that scale economies changed significantly from 1888 to 1935 for all expenditure categories considered (food, clothing, entertainment, and housing), but not all trends in scale economies are consistent with theoretical predictions. I use these historical estimates of household scale economies to resolve several theoretical and empirical puzzles in the literature. I find that existing explanations for puzzles in the household economies of scale literature do not hold in the past. As such, our notions about household economies of scale must be reassessed in light of this historical evidence.