Measuring the Willingness-to-Pay for Others' Consumption: An Application to Joint Decisions of Children
KU Leuven Discussion Paper Series DPS14.22
27 Pages Posted: 14 Oct 2014
Date Written: July 29, 2014
We propose a method to quantify the willingness-to-pay for the consumption of others in group decisions. Our method is based on revealed preference theory. It measures willingness-to-pay for others' consumption by evaluating positive consumption externalities in monetary terms. Within the framework of cooperative (i.e. Pareto efficient) consumption behavior, we introduce a selfishness parameter that defines a continuum of models that are characterized by varying degrees of consumption externalities. We use our method to analyze decisions made by dyads of children in an experimental consumption setting. We find that children's consumption decisions are systematically characterized by externalities (i.e. non-selfish). But we also observe that there is substantial heterogeneity across children, which we can relate to differences in age, gender and degree of friendship between dyad members.
Keywords: consumption externalities, selfishness, revealed preferences, children's consumption
JEL Classification: D11, D12, C14
Suggested Citation: Suggested Citation