Household Intertemporal Behavior: A Collective Characterization and a Test of Commitment

37 Pages Posted: 11 Apr 2005

See all articles by Maurizio Mazzocco

Maurizio Mazzocco

University of Wisconsin - Madison - Department of Economics

Date Written: August 2004

Abstract

In this paper, a formal test of intra-household commitment is derived and performed. To that end, two models of household intertemporal behavior are developed. In both models, household members are characterized by individual preferences. In the first formulation, household decisions are always on the ex-ante Pareto frontier. In the second model, the assumption of intra-household commitment required by ex-ante efficiency is relaxed. It is shown that the full-efficiency household Euler equations are nested in the no-commitment Euler equations. Using this result, the hypothesis that household members can commit to future allocations of resources is tested using the Consumer Expenditure Survey. I strongly reject this hypothesis. It is also shown that the standard unitary framework is a special case of the full-efficiency model. However, if household members are not able to commit, household intertemporal behavior cannot be characterized using the standard life-cycle model. These findings have two main implications. First, policy makers can change household behavior by modifying the decision power of individual household members. Second, to evaluate programs designed to improve the welfare of household members, it would be beneficial to replace the standard unitary model with a characterization of household behavior that allows for lack of commitment.

Keywords: Intertemporal collective models of household behavior, intra-household commitment, Euler equations, CEX

JEL Classification: D11, D12, D91, E21

Suggested Citation

Mazzocco, Maurizio, Household Intertemporal Behavior: A Collective Characterization and a Test of Commitment (August 2004). Available at SSRN: https://ssrn.com/abstract=700381 or http://dx.doi.org/10.2139/ssrn.700381

Maurizio Mazzocco (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States

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