Hidden in Plain Sight: Asymmetric Information and Hidden Income within the Household *

Abstract

Do household members hide employment income from one another? Consistent with income hiding within the household, I find that respondents in Kenya and Indonesia underestimate labor income of other household members, and underreport own income when other household members are present. Households with measured hiding consume more private goods and transfer more to extended families. I develop and test a household model where each member can strategically underreport income, increasing private consumption at the expense of household efficiency. In equilibrium, cooperation is endogenous and incomplete, as household members collectively allocate reported income, but total income is not allocated efficiently.