Intra-household Welfare

Abstract

In this paper we develop an approach to measuring inequality and poverty that recognizes the fact that individuals within households may have both different preferences and differential access to resources. We argue that a measure based on estimates of the sharing rule is inadequate as an approach that seeks to understand how welfare is distributed in the population because it ignores public good and the allocation of time to market work, leisure and household production. We develop a money metric measure of welfare that accounts for public goods (by using personalized prices) household production and for the allocation of time.

Individual Welfare Analysis for Collective Households

“…We next show that we can use these bounds on the shadow prices θ i E for each individual i to define informative upper and lower bounds on individuals' money metric welfare indices (M M W Is). As indicated in the Introduction, Chiappori and Meghir (2014) advocated the use of these M M W Is for individual welfare analysis based on the collective model.…”

“…At this point, however, we must also emphasize that this kind of conclusions should be taken with sufficient caution. In particular, for different reference prices, one may well obtain a reverse ordering of the individual money metric welfare indices (see Chiappori and Meghir (2014) for more discussion and a graphical example). Finally, we note that, for the given reference prices, the difference between the individuals' M M W Is is less pronounced than between the income shares η 1 E and η 2 E .…”

“…Such a non-unitary approach to modeling households' consumption behavior is particularly relevant for the analysis of individual welfare, as it naturally allows us to account for the possibility of an unequal distribution of resources and welfare within households. See, for example, Chiappori and Meghir (2014) and Chiappori (2016) for extensive argumentation. A main distinguishing feature of our method is that it builds on a revealed preference characterization of the collective model that is intrinsically nonparametric (in the tradition of Afriat (1967), Diewert (1973) and Varian (1982)).…”

“…Chiappori and Meghir (2014) particularly advocated the use of these indices for individual welfare analysis based on the collective model in the presence of public goods. In our empirical application, we will show that our identification method can be combined with nonparametric (e.g.…”

“…Our simulation exercise will illustrate the collective consumption mechanics underlying our identification method. Next, our empirical application is the first one that uses nonparametric revealed preference techniques to implement the collective money metric welfare concepts advocated by Chiappori and Meghir (2014) for observational household consumption data. Through various exercises, we will show that our method allows for an informative empirical analysis.…”