Cooperative Models in Action: Simulation of a Nash-Bargaining Model of Household Labor Supply with Taxation

28 Pages Posted: 9 Feb 2005

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Nicolas Moreau

Université Laval - Département d'Économique; CIRPEE

Date Written: January 2005

Abstract

Several theoretical contributions, starting with McElroy and Horney (1981) and Manser and Brown (1980), have suggested to model household behavior as a Nash-bargaining game. Since then, very few attempts have been made to operationalize cooperative models of household labor supply for policy analysis. In this paper, we implement a Nash-bargaining model with external threat points (divorce) into the microsimulation of tax policy reforms in France. Following the suggestion of McElroy (1990) to achieve identification, we assume that the observation of single individuals can be used to predict outside options. Individual preferences in couples are allowed to display caring between spouses and are simulated in a way which guarantee consistency with the Nash bargaining setting, regularity conditions and observed behaviors. An extensive sensitivity analysis is provided in order to examine the various implications from using the cooperative model for tax policy analysis and the likely role of taxation on intra-household negotiation.

Keywords: collective model, Nash-bargaining model, intrahousehold allocation, household labor supply, tax reform, microsimulation

JEL Classification: C25, C52, C71, D11, D12, H31, J22

Suggested Citation

Bargain, Olivier and Moreau, Nicolas, Cooperative Models in Action: Simulation of a Nash-Bargaining Model of Household Labor Supply with Taxation (January 2005). Available at SSRN: https://ssrn.com/abstract=664506

Olivier Bargain (Contact Author)

IZA Institute of Labor Economics ( email )

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Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Nicolas Moreau

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

CIRPEE ( email )

Ste-Foy, Quebec G1K 7P4
Canada

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