Confronting the Representative Consumer with Household-Size Heterogeneity

89 Pages Posted: 20 Sep 2010

See all articles by Christos Koulovatianos

Christos Koulovatianos

affiliation not provided to SSRN

Carsten Schröder

affiliation not provided to SSRN

Ulrich Schmidt

University of Kiel - Institute of Economics

Date Written: September 1, 2010

Abstract

Much analysis in macroeconomics empirically addresses economy-wide incentives behind consumer/investment choices by using insights from the way a single representative household would behave. Heterogeneity at the micro level can jeopardize attempts to back up the representative consumer construct with microfoundations. One complex aspect of micro-level heterogeneity is household size, as individuals living in multi-member households have the potential to share goods within the household, benefiting from household-size economies. Theoretically, we show that validating the role of a representative consumer would require that the way individuals benefit from intra-household sharing is strictly aligned across the rich and the poor: once expenditures for subsistence needs are subtracted from disposable household income, household-size economies the remainder (discretionary) household incomes entail must be the same across the rich and the poor. We have designed a survey method that allows the testing of this stringent property of intra-household sharing and find that it holds.

Keywords: Linear Aggregation, Equivalent Expenditures, Survey Method, Household-Size Economies

JEL Classification: C42, E21, D12, E01, D11, D91, D31, I32

Suggested Citation

Koulovatianos, Christos and Schröder, Carsten and Schmidt, Ulrich, Confronting the Representative Consumer with Household-Size Heterogeneity (September 1, 2010). DIW Berlin Discussion Paper No. 1056. Available at SSRN: https://ssrn.com/abstract=1679795 or http://dx.doi.org/10.2139/ssrn.1679795

Christos Koulovatianos

affiliation not provided to SSRN ( email )

Carsten Schröder

affiliation not provided to SSRN ( email )

Ulrich Schmidt (Contact Author)

University of Kiel - Institute of Economics ( email )

Olshausenstrasse 40
24098 Kiel, 24098
Germany

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