Allocation of Public and Private Goods Within the Household

Allocation of Public and Private Goods within the Household

Helga Kristjánsdóttir

In recent years economists have increasingly sought to explain interaction between family members, often using game theory as to studythe actions of family individuals(see Browning and Lechene, 2001; Browning and Gørtz, 2006; Browning, Chiappori and Lechene, 2006; Bonke and Browning, 2008).

Within the field of micro economics, researchers have commonly been analyzing differences in households material well being, that is issues regarding inter-household distribution, assuming identical preferences of household members, in a unitary model setting.

However, the focus has increasingly shifted towards analyzing intra household distribution of welfare, in a collective setting of the model.In their theoretical and empirical approach, Browning and Gørtz (2006) seek to compare these two approaches.

The objective of this paper is to gain better understanding of decision making within the household, and how it is related to relative income of household couples and their relative preferences of consumption and leisure.

This current research is determined to analyze joint and individual contribution of couples to private and public goods within the household.The research focus is both on survey data, and actual 10 year data from large Icelandic firms, in order to reflect how individual household members allocate their time and financial resources.The interaction between household couples is analyzed using game theory, using procedures such as the Nash game theoretic approach.Theories will then be tested on the data obtained, and results compared to earlier research.

Large Icelandic firms are asked to provide data on a comparable basis, obtained from the SAP financial system.The objective is to use 10 year data, in order to provide a strong indication of consumption behavior over time. The composition of the sample is of married couples, having full employment all year around, and having one or more child below 17 year old within the household.The consumption goods at the household are then decomposed, in order to shed light on expenditures on public goods.

This research is unique, since no comparable research as been performed using this type of a mix of survey data and corporate data.

Literature

Analysis in micro economics have been increasingly been directed towards studies of intra household allocation of time and money.Here is an overview of recent literature in the field.

Browning and Lechene (2001) study different intra-household models predictions on budget allocation decisions.They base their study on Canadian family expenditure survey data.

As to determine intra household decision making, Browning and Lechene (2001) analyse both non-cooperative and cooperative models, in order to test for the relationship between expenditures on goods and the intra-household distribution of income, see Figure 1 and Figure 2. The figures exhibit graphically different outcomes forcooperativeandnon-cooperative models within the households, dependent of if household individuals are sharing or selfish. In households with unequal distribution of incomes, they find evidence of ‘Becker dictator’ by thehigh income partner, and evidence of local income pooling.However, in the cases of more equal income households, they find re-distribution of income to result in budget allocation changes.

Bonke and Browning (2003) analyze intra household welfare distribution using the Danish part of a European Community household survey from 1994, including both household questionnaire and individual questionnaire.Firstly, they don’t find non-related individuals incomes to impact singles financial satisfaction. Secondly, they find there to be a considerable difference between husbands and wives, in how they report their financial satisfaction levels.Finally, findings indicate relative income to be the most important correlate with relative satisfaction.

In their paper Browning, Chiappori and Lechene (2006) study household behaviour distributional effects, under the conditions of a non-cooperative model.They consider Nash equilibrium public goods game of voluntary contributions, and find that either the partners contribute to different public goods or to at most one common good.Their conclusion is that even if authorities choose to give child benefits to a particular household member, it may not necessarily affect the outcomes.

Browning and Gørtz (2006) examine use of both time and expenditures within the household. The database is composed on information from survey of Danish households, accounting for both allocation of time and expenditures, for each individual household in the sample.

The paper by Browning and Gørtz (2006) seeks to explain if the balance between consumption and leisure is due to power bargaining within the household, or difference in either productivity or preferences.

Bonke and Browning (2008) base their research on a Danish survey of expenditures.To the conventional measures applied before, they add a survey allowing for analysis of whether expenditures are contributed to either of the parents, children or something outside the household.They also add to the conventional survey by including questions on the management of households, family background and autonomy. Among other things, their paper analyses the relation of clothing expenditure distribution to the other goods.

Other interesting papers that have contributed to literature in this field are papers like those by Browning, Bourguignon, Chiappori and Lechene (1994), Browning and Chiappori (1998), Browning, Chiappori and Lewbel (2003), Browning, Chiappori and Lechene (2006), Bourguignon, Browning and Chiappori (2006), Bonke and Gerstorf (2007), Bonke, Stratton, Deding and Lausten (2007), and paper by Bonke (2008), Bonke and Uldall-Poulsen (2007).

Figure 1. Cooperative Model Predictions (Source: Browning and Lechene, 2001).

Figure 2. Non Cooperative Model Predictions (Source: Browning and Lechene, 2001).

Data and Model

Literature within this micro economic field has been developing increasingly from analysis on differences between households, towards differences between individuals within the households, with regards to consumption and time use.In recent years economists have increasingly sought to explain the interaction between couples, that is the wife and husband in the household.

Better data availability has helped economists to focus more on individual time use and consumption, due to surveys measuring time allocation and expenditure allocation in more details than before.

Figure 3. Distribution of wife’s share of income (Source: Browning and Lechene, 2001).

Many studies spanning over time and across countries imply that, on average, married women do more housework and less market work than men, however they enjoy much the same leisure (Browning and Gørtz, 2006).The Canadian sample distribution used by Browning and Lechene (2001) indicates that, on average, the wife’s income share is lower than the husband share of income in the household, see Figure 3.

The model to be applied in this current research is directed towards explaining both inter and intra household variation.Therefore data cover both conventional survey data and actual panel data obtained from firms.The survey data applied will be similar to those used by Bonke and Browning (2008).By combining the survey data and the actual 10 year data, a truly unique data will be applied.

The model design will then be based on the survey and actual data available, and apply both inter- and intra household analysis of the data, allowing for an interesting comparison to earlier research in the field.

Summary

Economists are increasingly interested in analyzing how time and money allocation within the household is related to differences in preferences of household individuals or power bargaining between them.

Only recently, data availability has allowed for detailed enough analysis, in order to determine forces behind intra household actions regarding usage of time and money.Therefore, microeconomic literature on households has increasingly been developing towards analyzing simultaneously time and expenditures use within particular households.

The objective of this research is to apply a unique approach to Icelandic micro economic household data.First of all, this involves usage of survey data allowing for simultaneous study of time and money, within particular households.By applying this approach, it is possible to determine interaction between individual household members.Therefore, it is referred to as intra household research.Also, an application of this approach provides a unique opportunity to compare interaction within Icelandic households to that of foreign households, providing an interesting international comparison on an inter household level.Second of all, this research applies actual data obtained from firms, also for particular households.Data of this kind have not been applied in a comparable research, and this is therefore the most unique part of the research. The research can therefore be expected to exhibit intra household actions in a more specific details than previous research in the field, although bargaining results between the wife and the husband can be expected to result in a similar way.

A research of this kind both gives a rare opportunity to analyze decision making, potential power bargaining and preferences within Icelandic households, as well as to provide researchers with an opportunity to analyze Icelandic households in an international perspective.

References

Browning, M. and Gørtz, M. (2006). Spending time and money within the household. Economics Series Working Papers 288, University of Oxford, Department of Economics.

Browning, M., Chiappori, P. and Lechene, V. (2006).Distributional effects in household models. Separate spheres and income pooling. CAM Working Papers, University of Copenhagen.

Browning, M. and Lechene, V. (2001). Caring and Sharing. Tests Between Alternative Models of Intra-Household Allocation. Discussion Papers, University of Copenhagen, Department of Economics.

Bourguignon, F., Browning, M. and Chiappori P-A. (2006).Efficient intrahousehold allocations and distribution factors. Implications and identification. CAM Working Paper 2006-02, Department of Economics, University of Copenhagen.

Browning, M., Bourguignon, F. Chiappori, P-A. and Lechene, V. (1994). Incomes and outcomes. a structural model of intrahousehold allocation.Journal of Political Economy, 102(6), 1067-96.

Browning, M. and Chiappori, P-A. (1998). Efficient Intra-Household Allocations. A General Characterisation and Empirical Tests.Econometrica, 66(6), 1241-1278.

Browning, M., Chiappori, P-A. and Lechene, V. (2006). Collective and unitary models. Clarification.Review of Economics of the Household, 4(1), 5-14.

Browning, M., Chiappori, P-A. and Lewbel, A. (2003).Estimating consumption economies of scale, adult equivalence scales and household bargaining power. CAM Working Paper 2003-12, Department of Economics, University of Copenhagen.

Bonke, J. (2008, forthcoming). Income Distribution and Financial Satisfaction between Spouses in Europe. Journal of Socio-Economics.

Bonke, J. and M. Browning (2003). The Distribution of Well-Being and Income within the Household. CAM Working Papers 2003-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.

Bonke, J. and Browning, M. (2008, forthcoming). Allocation of expenditures within the household. A new Danish survey. Fiscal Studies.

Bonke, J. and Gerstorf, F. (2007). Stress, Time Use and Gender. International Journal of Time Use Research, 4(1), 47-68.

Bonke, J., Stratton, L., Deding, M. and Lausten, M. (2007). Intrahousehold Specialization in Housework in the United States and Denmark. IZA Discussion Paper No. 2777.

Bonke, J. and Uldall-Poulsen, H. (2007). Why Do Families Actually Pool their Income. Review of the Economics of the Household, 5(2), 113-128.