Observable and Unobservable Household Sharing Rules: Evidence from Young Couples' Pocket Money

Abstract

The leading evidence against the unitary household models is that "who gets what" issignificantly dependent upon "who earns how much." However, it is difficult to pin down thecausal effect of relative earnings on intra-household resource allocation because householdsjointly decide both labor supply and consumption. I utilize longitudinal data to analyze thespouse's individual budgets – "pocket money." This unique data set allows for thespecification of the simultaneous process of household decision-making in a fully stochasticfashion. By doing this, it is possible to differentiate unobserved spousal bargaining powerfrom heterogeneity at the household level. The results imply that the balance of powerbetween spouses is stable over time and robust to transitory changes in relative earnings.Public policies targeting the disadvantaged within households should be designed andimplemented on the long-term basis.

Keywords: intrahousehold resource allocation, collective household models, bargaining power

JEL Classification: D1, J1