Measuring the willingness-to-pay for others' consumption: An application to joint decisions of children

Abstract

We propose a method to quantify other‐regarding preferences in group decisions. Our method is based on revealed preference theory. It measures willingness‐to‐pay for others' consumption and willingness‐to‐pay for equality in consumption by evaluating consumption externalities in monetary terms. We introduce an altruism parameter and an inequality aversion parameter. Each parameter defines a continuum of models characterized by varying degrees of externalities. We study the empirical performance of our method through a simulation analysis, in which we also investigate the impact of measurement error and increased sample size. Finally, we use our method to analyze decisions made by dyads of children in an experimental setting. We find that children's decisions are particularly characterized by varying levels of altruism. We relate this heterogeneity across children to age, gender, and the degree of friendship in dyads.

Verbal aptitude hurts children's economic decision‐making accuracy

“…It is important to note that primary education is free and heterogeneous in terms of economic background in Belgium. Note that Cosaert and Demuynck (2015) used this data set as an illustration of discrete choice sets (ignoring the cognitive aptitude measurements) and that Bruyneel, Cherchye, Cosaert, De Rock, and Dewitte (2017) used data from the same children who subsequently made similar but collective decisions in pairs. Procedure.…”

Are preferences for work reference dependent or time nonseparable? New experimental evidence

“…Andreoni and Miller, 2002;Fisman et al, 2007;Cox et al, 2008), and inequality aversion (e.g. Bruyneel et al, 2017). It can be meaningfully applied to relatively small data sets, and avoids ad hoc restrictions on the form of utility functions.…”

Group Consumption with Caring Individuals

“…The first good gives the children the possibility to jointly watch part of a popular Belgian TV series. 21 Clearly, watching movies is non-rivalrous and non-exclusive within a given dyad, which makes this a public good. This contrasts with Bruyneel, Cherchye, Cosaert, De Rock and Dewitte (2017), who used grapes instead of movies for the first good, so that all goods were private by construction.…”

“…The explanation is as follows. Constraint (21) imposes that the private consumption bundles q A t and q B t sum to the observed aggregate quantities q t , as required by condition S.1. Further, constraints (17)- (20) comply with condition S.2 in Proposition 3.…”