Abstract
This paper tests whether preferences over bundles of market goods are different for single persons and members of couples. We use a collective model which incorporates economies of scale in consumption. Detailed individual consumption data enable us to estimate a model that allows individual preferences for some goods to depend on household composition. The hypothesis that singles and couple members of the same gender have the same preferences is rejected. This suggests that preferences may change when household composition changes. We produce indifference scales for members of couples and a refined poverty line measure for couples. Indifference scales for women and men are respectively 81 and 59 percent of their household’s expenditure. These measures are highly sensitive to the preference equality assumption.
Highlights
Households consisting of two persons make expenditure decisions in a fundamentally different way than single-person households
We find that imposing full household composition independence of preferences (HCIP) substantially biases estimates of the collective model
We find that the poverty rates are biased downward when poverty lines based on the full HCIP model are used
Summary
Households consisting of two (or more) persons make expenditure decisions in a fundamentally different way than single-person households. We use a model based on Browning et al (2013) (BCL hereafter) that allows preferences over the consumption of a subset of individually assignable goods and services to depend on the composition of the household. When expenditure data for more than one assignable good per household member are observed (as is the case in the LISS data), full HCIP can be weakened to partial HCIP The latter uses variation in the allocation among the assignable goods to identify household composition dependent preference parameters. Couples on average allocate a significantly smaller budget share to non-assignable goods than single-person households (0.76 compared to 0.84). We use background variables to model heterogeneity in individual preferences and to explain the intra-household distribution of expenditure by couples. We use a homeownership dummy, separate higher education dummies for the wife and husband, and total household expenditure as additional explanatory variables in the sharing rule
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