In this paper, a formal test of intra-household commitment is derived and performed. To that end, two models of household intertemporal behaviour 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 behaviour cannot be characterized using the standard life-cycle model. These findings have two main implications. First, policy makers can change household behaviour by modifying the decision power of individual household members. Second, to evaluate programmes designed to improve the welfare of household members, it would be beneficial to replace the standard unitary model with a characterization of household behaviour that allows for lack of commitment. Copyright 2007 The Review of Economic Studies Limited.

We discuss the most popular static and dynamic models of household behavior. Our main objective is to explain which aspects of household decisions different models can account for. Using this insight, we describe testable implications, identification results, and estimation findings obtained in the literature. Particular attention is given to the ability of different models to answer various types of policy questions.

Previous papers have tested efficient risk sharing under the assumption of identical risk preferences. In this paper we show that, if in the data households have heterogeneous risk preferences, the tests proposed in the past reject efficiency even if households share risk efficiently. To address this issue we propose a method that enables one to test efficiency even when households have different preferences for risk. The method is composed of three tests. The first one can be used to determine whether in the data under investigation households have homogeneous risk preferences.The second and third tests can be used to evaluate efficient risk sharing when the hypothesis of homogeneous risk preferences is rejected. We use this method to test efficient risk sharing in rural India. Using the first test, we strongly reject the hypothesis of identical risk preferences. We then test efficiency with and without the assumption of preference homogeneity. In the first case we reject efficient risk sharing at the village and caste level. In the second case we still reject efficiency at the village level, but we cannot reject this hypothesis at the caste level. This finding suggests that the relevant risk-sharing unit in rural India is the caste and not the village.