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Understanding household decisions is crucial for promoting gender equality and economic development. First, individuals in developing countries, especially women, spend more of their lives married. According to UN estimates (2018), 23% of women in the least developed countries are already married by age 19, compared to 3% of women in developed countries. Second, women and children are more likely to be poor than men, even after controlling for total household income (Dunbar et al. 2013). To lift women and children out of poverty, we must first understand the roots of unequal distribution in the household. Lastly, policymakers need to make informed choices that affect intrahousehold dynamics. From the identity of beneficiaries to information disseminated, every policy makes implicit assumptions on household decision-making. Understanding how households make decisions can improve the targeting of anti-poverty programs, reduce poverty of women and children, and promote equitable gender norms. What matters for intrahousehold allocation and the welfare of its members? Empirically, a large literature has proposed that increasing the amount of income controlled by women can increase their bargaining power and improve child development outcomes (e.g. Duflo 2003). Building on this literature, I show that in addition to the amount of income, the observability and the source of one's income also affect household decision-making and investment in children. That is, not all incomes are created equal. The first two chapters of my dissertation study the role of asymmetric information and unobservable income in household allocation. In many developing countries where employment is often informal and volatile, household members cannot perfectly observe each other's income. In the first chapter of my dissertation, I present novel empirical evidence that individuals hide employment income from other household members. Using both field survey data collected in western Kenya and a nationally representative dataset in Indonesia, I find that workers hide up to 20% of their employment income from other household members. I develop a model of strategic hidden income that explains why intrahousehold hidden income can persist in a Nash equilibrium. The key feature of the model is that each member of the household can strategically underreport income, increasing private consumption at the expense of household efficiency. hiding may come at a utility cost, but it allows workers to consume more private goods than otherwise, that is, by engaging in intrahousehold bargaining. In equilibrium, cooperation is endogenous and may be incomplete, as household members collectively allocate reported income, but total income is not allocated efficiently. Empirical tests reject collective rationality and support partial income pooling, which is consistent with strategic hidden income. Hiding is not only large in magnitude, but it is also economically significant. In Kenya and Indonesia, households with measured income hiding consume more private goods (such as tobacco and transfers to extended family) and spend less on groceries. In Indonesia, children in households with measured hidden income consume less protein-rich foods and are more likely to be underweight for their age. However, this effect only manifests when the income is hidden from the wife. These children continue to fare worse as adults, as they are more likely to be underweight (girls) and less likely to be employed (boys). In contrast, income hidden from the husband is not correlated with worse child outcomes. Using experimental methods, I further explore the causal effects of income hiding on household consumption in the second chapter of the dissertation. In a lab-in-the-field experiment, I exogenously vary the observability of experimental endowment that 610 Kenyan couples receive. After receiving the endowment, couples play a modified public goods game, where they first choose how much to allocate to a personal pot and a shared pot, where allocation to the shared pot is doubled and divided between the two spouses. In addition, the participant makes consumption choices out of a menu of common household goods, children's goods, and private goods. While the available consumption choices are the same for personal and household pots, consuming out of the personal pot is unobserved by the spouse. I find that when income is unobservable, both husbands and wives share less with their spouses, which is consistent with income hiding. In addition, husbands consume significantly more private goods when income is unobservable, while wives do not change their consumption behavior. Hiding in the experiment is predicted by high sharing pressure and is positively correlated with survey-based measures of income hiding. In addition to the observability of income, the source of income also matters in household allocation. In the final chapter of the dissertation, I turn to studying a conditional cash transfer program in Mexico, and compare the effects of employment and welfare income on household allocation. Using data from Mexico's Progresa conditional cash transfer program, I show that receiving cash transfers reallocates household resources from adults to children. In contrast, female employment reallocates resources from male household members (men and boys) to female ones (women and girls). This suggests that a policy encouraging female employment can be more effective at decreasing gender inequality than welfare programs providing cash transfers to women.
The family is a complex decision unit in which partners with potentially different objectives make consumption, work and fertility decisions. Couples marry and divorce partly based on their ability to coordinate these activities, which in turn depends on how well they are matched. This book provides a comprehensive, modern and self-contained account of the research in the growing area of family economics. The first half of the book develops several alternative models of family decision making. Particular attention is paid to the collective model and its testable implications. The second half discusses household formation and dissolution and who marries whom. Matching models with and without frictions are analyzed and the important role of within-family transfers is explained. The implications for marriage, divorce and fertility are discussed. The book is intended for graduate students in economics and for researchers in other fields interested in the economic approach to the family.
Studies of inequality often ignore resource allocation within the household. In doing so they miss an important element of the distribution of welfare that can vary dramatically depending on overall environmental and economic factors. Thus, measures of inequality that ignore intra household allocations are both incomplete and misleading. We discuss determinants of intrahousehold allocation of resources and welfare. We show how the sharing rule, which characterizes the within household allocations, can be identified from data on household consumption and labor supply. We also argue that a measure based on estimates of the sharing rule is is inadequate as an approach that seeks to understand how welfare is distributed in the population because it ignores public goods and the allocation of time to market work, leisure and household production. We discuss a money metric alternative, that fully characterizes the utility level reached by the agent. We then review the current literature on the estimation of the sharing rule based on a number of approaches, including the use of distribution factors as well as preference restrictions.
We propose a novel structural method to empirically identify economies of scale in household consumption. We assume collective households with consumption technologies that define the public and private nature of expenditures through Barten scales. Our method recovers the technology by solely exploiting preference information revealed by households' consumption behavior. The method imposes no parametric structure on household decision processes, accounts for unobserved preference heterogeneity across individuals in different households, and requires only a single consumption observation per household. Our main identifying assumption is that the observed marital matchings are stable. We apply our method to data drawn from the US Panel Study of Income Dynamics (PSID), for which we assume that similar households (in terms of observed characteristics like age or region of residence) operate on the same marriage market and are characterized by a homogeneous consumption technology. This application shows that our method yields informative results on the nature of scale economies and intrahousehold allocation patterns. In addition, it allows us to define individual compensation schemes required to preserve the same consumption level in case of marriage dissolution or spousal death.
We conduct two lab experiments and one field experiment to investigate demand for consumption agency in married couples. The evidence we uncover is consistent across all three experiments. Subjects are often no better at guessing their spouse's preferences than those of a stranger, and many subjects disregard what they believe or know about others' preferences when assigning them a consumption bundle. This confers instrumental value to individual executive agency within the household. We indeed find significant evidence of demand for agency in all three experiments, and this demand varies with the cost and anticipated instrumental benefit of agency. But subjects often make choices incompatible with pure instrumental motives - e.g., paying for agency even when they know their partner assigned them their preferred choice. We also find female subjects to be quite willing to exert agency even though, based on survey responses, they have little executive agency within their household. We interpret this as suggestive of pent-up demand for agency, and indeed we find that female demand for agency falls as a result of an empowerment intervention.
The field of development economics has evolved since volume 3 of the Handbook of Development Economics was published more than a decade ago. Volume 4 takes stock of some of the newer trends and their implications for research in the field and our understanding of economic development. The handbook is divided into four sections which reflect these developments, of which the first deals with agricultural and rural development. Section two is concerned with developments in the theory and evidence regarding public goods and political economy. The third section is focused on the behavior of households and individuals regarding various aspects of human capital investments, in the face of the various constraints, particularly market incentives and public goods. The final section contains papers that describe the different methods now available, both experimental and non-experimental, to conduct program evaluations, as well as describing papers that implement these methods. The authors of the chapters are all experts in the fields they survey and extend, and this volume promises to be an invaluable addition to the Handbooks in Economics series and a useful reference to graduate students, researchers and professionals in the field of development economics. Presents an accurate, self-contained survey of the current state of the field Summarizes the most recent discussions in journals, and elucidates new developments Although original material is also included, the main aim is the provision of comprehensive and accessible surveys