Group Consumption with Caring Individuals

KU Leuven, Discussion Paper Series, November 2017

43 Pages Posted: 8 Dec 2017

See all articles by L. Cherchye

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Sam Cosaert

Luxembourg Institute of Socio-Economic Research (LISER)

Thomas Demuynck

Catholic University of Leuven (KUL) - Faculty of Business and Economics (FBE)

Bram De Rock

Katholieke Universiteit Leuven Campus Kortrijk (KULAK)

Date Written: November 10, 2017

Abstract

We propose a novel approach to model joint consumption decisions of individuals who care for each other. We assume non-cooperative interaction between the different individuals and the within-group consumption outcome critically depends on the degree of caring between the group members. By varying the degree of caring, the model encompasses a whole continuum of group consumption models that are situated between the fully cooperative model (assuming a Pareto optimal outcome) and the non-cooperative model without caring (assuming a public good game with voluntary contributions). This feature is used to define a measure for the degree of cooperation within the group, which quantifies how close the observed group behavior is to the fully cooperative benchmark. We also establish a dual characterization of our non-cooperative model with caring preferences: we show that the model is dually equivalent to a non-cooperative model with non-caring preferences that is characterized by intra-group transfers. Following a revealed preference approach, we derive testable implications of the model for empirical data. Finally, we also use our model to analyze decisions made by dyads of children in an experimental setting. We find considerable heterogeneity in the degree of caring (or cooperation) across dyads, which correlates with assertiveness and the degree of interaction within dyads.

Keywords: Joint Consumption, Caring Preferences, Intra-Group Cooperation, Nash Equilibrium, Revealed Preferences, Children’s Consumption

JEL Classification: D11, D12, D13, C14

Suggested Citation

Cherchye, Laurens and Cosaert, Sam and Demuynck, Thomas and De Rock, Bram, Group Consumption with Caring Individuals (November 10, 2017). KU Leuven, Discussion Paper Series, November 2017. Available at SSRN: https://ssrn.com/abstract=3082334 or http://dx.doi.org/10.2139/ssrn.3082334

Laurens Cherchye (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Sam Cosaert

Luxembourg Institute of Socio-Economic Research (LISER) ( email )

11, Porte des Sciences
Campus Belval – Maison des Sciences Humaines
Esch-sur-Alzette, L-4366
Luxembourg

Thomas Demuynck

Catholic University of Leuven (KUL) - Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Bram De Rock

Katholieke Universiteit Leuven Campus Kortrijk (KULAK) ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

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