Allocation of Expenditures in Elderly Households and the Cost of Widowhood

Abstract

SUMMARYWidowhood and retirement change the economic environment of elderly households. While retirement changes income and expenditure patterns, widowhood fundamentally changes the structure of the household. Besides high non-monetary cost of losing the partner, resources are no longer shared and economies of scale arising from joint consumption are lost. This paper applies a collective household model to expenditure data on elderly households in Switzerland. The findings suggest that 44% of household resources are assigned to wives and both spouses save roughly 27% or, on average, 800 Swiss Francs on monthly expenditures relative to living apart. Estimates of indifference scales indicate that men suffer a financial loss after losing their wife, while widowed women do not. a I am grateful to two anonymous referees, Aline Biitikofcr, Michael Gerfin, Boris Kaiser, Kaspar Wuthrich, and seminar participants at the University of Bern for helpful suggestions and comments.

Living Standards in One-Person Households of the Elderly Population

“…The people running alone households are the only decision maker within their household, therefore their optimal choice of the bundle of goods is the optimal choice of the household. This simplifies the analysis of consumption patterns, since the entire household wealth is at their own disposal and there are no economies of scale in consumption which are potentially arising in households with two and more person [11].…”