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Kinky Choices, Dictators and Split Might: A Non-Cooperative Model for Household Consumption and Labor Supply

CentER Discussion Paper Series No. 2009-53

21 Pages Posted: 5 Jul 2009  

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; TILEC

Karen van der Wiel

CPB Netherlands Bureau of Economic Policy Analysis

Frederic Vermeulen

Tilburg University - CentER; IZA Institute of Labor Economics

Multiple version iconThere are 4 versions of this paper

Date Written: June 30, 2009

Abstract

It is unlikely that husbands and wives always agree on exactly what public goods to buy. Nor do they necessarily agree on how many hours to work with obvious consequences for the household budget. We therefore model consumption and labor supply behavior of a couple in a non-cooperative setting by adopting a Nash approach. Using minimal assumptions, we prove that demand for public goods is characterized by three regimes. It is either determined by the preferences of one of the partners only (Husband Dictatorship or Wife Dictatorship), or by both spouses' preferences where a partner's influence depends on the spouses' relative wage rates (Split Might). These regimes imply a kinked nature of the couple's aggregate demand curves. By imposing more structure on the model, we can derive testable implications on observed demand for public goods and labor supply that allow testing the model against the standard unitary model where a couple behaves as a single decision maker. The model is applied to a sample drawn from the Consumer Expenditure Survey (CEX) whereby we explicitly focus on expenses on children's goods that act as a public good in the spouses' preferences. We find that for couples with two or three children the standard unitary model is strongly rejected in favor of our non-cooperative model. Moreover, it turns out that for the majority of these couples, there is a Wife Dictatorship in the sense that the spending pattern is according to her preferences.

Keywords: Consumption, labor supply, intra-household allocation, non-cooperative model, public goods

JEL Classification: D11, D12, D13

Suggested Citation

Boone, Jan and van der Wiel, Karen and Vermeulen, Frederic, Kinky Choices, Dictators and Split Might: A Non-Cooperative Model for Household Consumption and Labor Supply (June 30, 2009). CentER Discussion Paper Series No. 2009-53. Available at SSRN: https://ssrn.com/abstract=1428403 or http://dx.doi.org/10.2139/ssrn.1428403

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
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+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Germany

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Karen Van der Wiel

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Frederic Vermeulen

Tilburg University - CentER ( email )

P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 3196 (Phone)

HOME PAGE: http://center.uvt.nl/staff/vermeulen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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