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Title:Kinky choices, dictators and split might: a non-cooperative model for household consumption and labor supply PDF Logo
Authors:Boone, Jan
van der Wiel, Karen
Vermeulen, Frederic
Issue Date:2009
Series/Report no.:IZA Discussion Papers 4272
Abstract:It is unlikely that husbands and wives always agree on exactly what public goods to buy. Nor do they necessarily agree on how many hours to work with obvious consequences for the household budget. We therefore model consumption and labor supply behavior of a couple in a non-cooperative setting by adopting a Nash approach. Using minimal assumptions, we prove that demand for public goods is characterized by three regimes. It is either determined by the preferences of one of the partners only (Husband Dictatorship or Wife Dictatorship), or by both spouses' preferences where a partner's influence depends on the spouses' relative wage rates (Split Might). These regimes imply a kinked nature of the couple's aggregate demand curves. By imposing more structure on the model, we can derive testable implications on observed demand for public goods and labor supply that allow testing the model against the standard unitary model where a couple behaves as a single decision maker. The model is applied to a sample drawn from the Consumer Expenditure Survey (CEX) whereby we explicitly focus on expenses on children's goods that act as a public good in the spouses' preferences. We find that for couples with two or three children the standard unitary model is strongly rejected in favor of our non-cooperative model. Moreover, it turns out that for the majority of these couples, there is a Wife Dictatorship in the sense that the spending pattern is according to her preferences.
Subjects:Consumption
labor supply
intra-household allocation
non-cooperative model
public goods
JEL:D11
D12
D13
Persistent Identifier of the first edition:urn:nbn:de:101:1-2009082010
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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