Individual Welfare Analysis for Collective Households
KU LEUVEN - Discussion Paper Series, DPS17.16, November 2017
39 Pages Posted: 8 Dec 2017
Date Written: November 17, 2017
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
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