Martin Browning

Efficient Intra-Household Allocations - A General Characterization and Empirical Tests

The neoclassical theory of demand applies to individuals, yet in empirical work it is usually taken as valid for households with many members. This paper explores what the theory of individuals implies for households that have more than one member. We make minimal assumptions about how the individual members of the household resolve conflicts. All we assume is that however decisions are made, outcomes are efficient. We refer to this as the collective setting. We show that in the collective setting household demands must satisfy a symmetry and rank condition on the Slutsky matrix. We also present some further results on the effects on demands of variables that do not modify preferences but that do affect how decisions are made. We apply our theory to a series of surveys of household expenditures from Canada. The tests of the usual symmetry conditions are rejected for two-person households but not for one-person households. We also show that income pooling is rejected for two-person households. We then test for our collective setting conditions on the couples data. None of the collective setting restrictions are rejected. We conclude that the collective setting is a plausible and tractable next step to take in the analysis of household behavior.

THE EFFECTS OF MALE AND FEMALE LABOR SUPPLY ON COMMODITY DEMANDS

The authors examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of demands from labor supply. Using data on individual households from six years of the U.K. Family Expenditure Survey, they estimate a demand system for seven goods that includes hours and participation dummies as conditioning variables. Allowance is made for the possible endogeneity of theses conditioning labor-supply variables. The authors find that separability is rejected. Furthermore, they present evidence that ignoring labor supply leads to bias in the parameter estimates. Copyright 1991 by The Econometric Society.

Nonparametric Engel Curves and Revealed Preference

This paper applies revealed preference theory to the nonparametric statistical analysis of consumer demand. It exploits the idea that price-taking individual households in the same market face the same relative prices, in order to smooth across the demands of individuals for each common price regime. This is shown to provide a stochastic structure within which to examine the consistency of household level data and revealed preference theory. An application is made to a long time series of repeated cross-sections from the 1974-1993 UK Family Expenditure Surveys. The consistency of this data with revealed preference theory is examined. Where rejections do occur, suitable adjustments to prices for quality or taste changes are explored. For periods of consistency with revealed preference bounds are placed on true cost of living indices.

Unemployment insurance benefit levels and consumption changes

We use a survey of unemployed people to examine how a job loss impacts on household expenditures. The principal focus is on the effect of the level of income replacement provided by Unemployment Insurance. We restrict attention to a sub-sample of respondents who are still in their first spell of unemployment after six months. For this group we find large consumption falls, averaging about 16% of total expenditure. The actual fall depends on a variety of factors of which the most important is the pre-job loss ratio of the respondents income to household income. The effects of varying the replacement ratio are relatively small. We only find effects for those who did not have assets at the job loss and even for them the elasticity of total expenditure with respect to benefit is small. We conclude that for most of our sample, small changes in the benefit level will have no effect on living standards within the household and hence on other facets of behaviour such as job search, unemployment duration and the quality of any new job taken.

Effect of job loss due to plant closure on mortality and hospitalization

We investigate whether job loss due to plant closure causes an increased risk of (cause-specific) mortality and hospitalization for male workers having strong labour market attachment. We use administrative data: a panel of all persons in Denmark in the period 1980-2006, containing records on health and work status, and a link from workers to plants. We use propensity score weighting combined with non-parametric duration analysis. We find that job loss increases the risk of overall mortality and mortality caused by circulatory disease; of suicide and suicide attempts; and of death and hospitalization due to traffic accidents, alcohol-related disease, and mental illness.

Shocks, stocks and socks: smoothing consumption over a temporary income loss

We investigate how households in temporarily straitened circumstances due to an unemployment spell cut back on expenditures and how they spend marginal dollars of unemployment insurance (UI) benefit. Our theoretical and empirical analyses emphasize the importance of allowing for the fact that households buy durable as well as non-durable goods. The theoretical analysis shows that in the short run households can cut back significantly on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables. We then present an empirical analysis based on a Canadian survey of workers who experienced a job separation. Exploiting changes in the unemployment insurance system over our sample period we show that cuts in UI benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures. Our empirical strategy allows that these expenditures may be non-separable from employment status. The effects we find are particularly strong for households with no liquid assets before the spell started. These qualitative findings are in precise agreement with the theoretical predictions. (JEL: D11, D12, D91, J65) (c) 2009 by the European Economic Association.

Consumption and Children

Consumption by couples rises sharply in the beginning and falls later in life; the causes of the early rise are hotly contested. Among the suggestions are rule of thumb behavior, demographics, liquidity constraints, the precautionary motive, and nonseparabilities between consumption and labor supply. We develop two tests of the extreme hypothesis that only changes in family structure matter. We estimate effects of the numbers and ages of children on consumption. These estimates allow us to rationalize all of the increase in consumption without recourse to any of the causal mechanisms. Our estimates can be interpreted either as giving upper bounds on the effects of children or as evidence that the other causes are not important.

A Simple Nonadditive Preference Structure for Models of Household Behavior over Time

Intertemporal separability is an almost universal assumption in empirical work on household behavior, but a good deal of recent work on consumption and labor supply suggests that it may not be tenable. The traditional weakening of this assumption is to allow for habit formation. I propose an alternative structure for intertemporal preferences that nests intertemporal additivity in a simple way and yields closed-form solutions for demand functions. This structure includes the neoclassical durables model as a special case. I derive a demand system that nests the almost ideal system as its time-separable counterpart. This model is estimated on U.K. aggregate time-series data for seven goods. Time separability is decisively rejected. Moreover, I find that ignoring temporal dependencies leads to considerable bias in the estimates of elasticities. Of the seven goods, durables display the strongest nonseparable effect; the estimated reactions are consistent with the neoclassical durables model.

IMPUTING CONSUMPTION FROM INCOME AND WEALTH INFORMATION

We investigate the feasibility of deriving a measure of total expenditure at the household level from administrative micro-data on income and wealth. We use Danish administrative data that provides measures of disposable income and the holding of different assets at the end of the year. The ability to link the households in the 1994-6 Danish Expenditure Survey to their administrative data for the years around the survey year offers a unique possibility for constructing a measure of total expenditure and of checking directly on the reliability of the imputation. The results are promising. Copyright 2003 Royal Economic Society.

Distributional Effects in Household Models: Separate Spheres and Income Pooling

We derive distributional effects for a non-cooperative alternative to the unitary model of household behaviour. We consider the Nash equilibria of a voluntary contributions to public goods game. Our main result is that, in general, the two partners either choose to contribute to different public goods or they contribute to at most one common good. The former case corresponds to the separate spheres case of Lundberg and Pollak (1993). The second outcome yields (local) income pooling. A household will be in different regimes depending on the distribution of income within the household. Any bargaining model with this non-cooperative case as a breakdown point will inherit the local income pooling. We conclude that targeting benefits such as child benefits to one household member may not always have an effect on outcomes.