Individual Welfare Analysis for Collective Households

KU LEUVEN - Discussion Paper Series, DPS17.16, November 2017

39 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)

Bram De Rock

Katholieke Universiteit Leuven Campus Kortrijk (KULAK)

Pieter Jan Kerstens

KU Leuven - Subfaculty of Economics and Applied Economics

Frederic Vermeulen

KU Leuven

Date Written: November 17, 2017

Abstract

We propose novel tools for the analysis of individual welfare on the basis of aggregate household demand behavior. The method assumes a collective model of household consumption with the public and private nature of goods specified by the empirical analyst. A main distinguishing feature of our method is that it builds on a revealed preference characterization of the collective model that is intrinsically non-parametric. We show how to identify individual money metric welfare indices from observed household demand, along with the intra-household sharing rule and the individuals' willingness-to-pay for public consumption (i.e. Lindahl prices). The method is easy to use in practice and yields informative empirical results, which we demonstrate through a simulation analysis and an empirical application to labor supply data.

Keywords: individual welfare, collective model, revealed preferences, sharing rule, money metric welfare index, identification, labor supply

JEL Classification: D11, D12, D13, C14

Suggested Citation

Cherchye, Laurens and Cosaert, Sam and De Rock, Bram and Kerstens, Pieter Jan and Vermeulen, Frederic, Individual Welfare Analysis for Collective Households (November 17, 2017). KU LEUVEN - Discussion Paper Series, DPS17.16, November 2017. Available at SSRN: https://ssrn.com/abstract=3082362 or http://dx.doi.org/10.2139/ssrn.3082362

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

Bram De Rock

Katholieke Universiteit Leuven Campus Kortrijk (KULAK) ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

Pieter Jan Kerstens

KU Leuven - Subfaculty of Economics and Applied Economics ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

Frederic Vermeulen

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

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