Heterogeneous Households Research Articles

Participation in artisanal diamond mining and food security: A case study of Kasai Oriental in DR Congo

Abstract The high prevalence of food insecurity and malnutrition in Kasai Oriental, Democratic Republic of the Congo, prompted an investigation into the complex relationship between household livelihood activities and food security. Despite many rural households relying on subsistence farming, this alone may not ensure improved food security in Kasai Oriental. Consequently, non-farm sectors like artisanal mining offer a potential solution to address food insecurity among rural households. The aim of this study is to explore the association between engagement in artisanal diamond mining, food insecurity, and children’s nutritional status in Kasai Oriental. The research utilizes household cross-sectional data collected between November and December 2022. Fixed effects and Instrumental variable models were employed to address household heterogeneity and potential endogeneity related to participation in artisanal diamond activities. The regression results reveal a significant relationship between participation in artisanal diamond mining and food security. This implies that participation increases households’ cash, enabling them to access sufficient food and potentially mitigating the risk of falling into food insecurity. However, involvement in artisanal mining has not shown a significant association with children’s malnutrition. These findings call for further research on “hidden hunger.” Policies aiming to encourage and formalize artisanal diamond mining should integrate specific extension services and inform rural households about hidden hunger.

Energy shocks as Keynesian supply shocks: Implications for fiscal policy

This paper analyses the economic impact of and the optimal policy response to energy supply shocks in a flexible price model with heterogeneous households. We introduce energy as a consumption good on the demand side and as an input to production on the supply side. A distinguishing feature is that, in line with empirical evidence, we allow households’ energy demand to be non-homothetic. The model provides three main insights. First, (negative) energy supply shocks act as a (negative) demand shock, or Keynesian supply shock, when two conditions are met: On the demand side household income inequality needs to be large, while on the supply side, the price elasticity of consumption goods needs to be high. Second, the social planner can implement the first-best allocation by subsidising firms and poor households while taxing rich households. Energy shocks then act as standard supply shocks. Last, issuing public debt can help implement the first best allocation when energy shocks are large and/or the economy’s overall energy intensity is low.

Inequalities in Water Insecurity in Kenya: A Multidimensional Approach

Water insecurity is a global concern likely to be compounded by increases in population and climate change. Existing water insecurity measurement methods capture multidimensional deprivation only at regional or sub-regional levels. Such estimates do not capture heterogeneous household experiences of water supply, proximity to water sources and affordability, which can vary substantially from regional averages. Accurate measurement requires a method that captures the incidence and intensity of a household’s simultaneous deprivation in dimensions of water accessibility, affordability, sufficiency and safety. We propose such a method and assess related inequalities using an approach analogous to the Alkire–Foster methodology for multidimensional poverty. Using household-level data from the Kenya Integrated Household Budget Survey 2015/16, we find that 63% of the Kenyan population experience multiple deprivation in water access. The dimensions of water affordability and sufficiency contribute most to multidimensional water insecurity, highlighting the need to ensure an adequate supply of affordable water. Disparities by household place of residence, dwelling type, and socio-economic status are evident. The estimates of multidimensional water insecurity are robust to different deprivation and poverty cutoffs. Our analysis is an invitation to rethink water insecurity metrics, allowing water deprivation to be measured more frequently and with greater precision to understand its impact clearly.

Unwinding quantitative easing: State dependency and household heterogeneity

This paper studies the asymmetry in the macroeconomic effects of central bank asset market operations induced by state dependency and the associated role of household heterogeneity. We build a New Keynesian model with borrowers and savers in which quantitative easing and tightening operate through portfolio rebalancing between short-term and long-term government bonds. We highlight the significance of an occasionally binding zero lower bound in explaining a weaker aggregate impact of asset sales relative to asset purchases. In this context, when close to the lower bound, raising the nominal interest rate prior to unwinding quantitative easing mitigates the economic costs of monetary policy normalization. Furthermore, our results imply that household heterogeneity in combination with state dependency amplifies the revealed asymmetry, while household heterogeneity alone does not enhance the aggregate effects of asset market operations.

Inequality, openness, and growth through creative destruction

We examine how inequality and openness interact in shaping the long-run growth prospects of developing countries. To this end, we develop a Schumpeterian growth model with heterogeneous households and non-homothetic preferences for quality. We show that inequality affects growth very differently in an open economy as opposed to a closed economy: If the economy is close to the technological frontier, the positive demand effect of inequality on growth found in closed-economy models may be amplified by international competition. In countries with a larger distance to the technology frontier, however, rich households satisfy their demand for high quality via importing, and the effect of inequality on growth is smaller than in a closed economy and may even be negative. In such case trade gives rise to the endogenous emergence of a ‘dual economy’ where some domestic sectors are highly innovative while others are lagging behind.

Did COVID-19 discriminate in the global South? Revealing heterogeneity of urban households’ livelihood resilience based on evidence from Bangladesh, China, India and Philippines

“Lives or livelihoods” is a hard trade-off when confronting COVID-19, especially for cities in the Global South. Countermeasures to protect people's lives may exert negative impacts on urban households and test their livelihood resilience. Did COVID-19 discriminate? Did livelihood resilience vary among different urban households within and across different countries and cities? Established studies focused on rural households' livelihood resilience under climate change or natural hazard based on single country context. Little is known about the variety of urban households' livelihood resilience under COVID-19 across countries and cities. This study aims to fill this gap by revealing heterogeneity of livelihood resilience at both individual urban household level and country level. First-hand questionnaire survey data (N ​= ​4374) were collected from seven cities from Bangladesh, China, India, and Philippines. Using a combination of quantitative and qualitative analytical methods, it's found that: COVID-19 did discriminate. Urban households with larger household size, no home ownership, no financial assets, and household heads with low education level, informal employed and no flexibility to transfer to work from home, were vulnerable groups. COVID-19 also discriminated across cities. Cities with a high ratio of informal workers, no effective economic relief policies and long stringent mobility restriction measures performed worse.

Is the output growth rate in NIPA a welfare measure?

Abstract This paper shows that, in a dynamic general equilibrium framework, the rate of output growth as measured by national income and product accounts reflects changes in welfare in the precise sense of equivalent variation. The main argument is straightforward. In a two-sector dynamic general equilibrium model of heterogeneous households, recursive preferences and quasi-concave technology, the Bellman equation provides a representation of household preferences over current consumption and investment. When applied to this representation of preferences, a Fisher–Shell true quantity index turns out to be equal to the Divisia index, closely approximated by the Fisher ideal chain index used in national income and product accounts.

Inflation and income inequality in an open-economy growth model with liquidity constraints on R&D

This study presents a framework to understand the relationship between inflation and income inequality in an open-economy Schumpeterian growth model with heterogeneous households, firm-level innovation, and cash-in-advance constraints on R&D investment. We show that the global real interest rate channel can play a key role in defining this relationship. In smaller economies that have negligible impacts on the global interest rate, income inequality is likely to exacerbate as inflation rates rise. In contrast, for larger economies that can significantly affect the global interest rate, inflation and income inequality may demonstrate a U-shaped relationship. These theoretical predictions are supported by the quantitative analysis in a model calibrated to the economies of the US and the eurozone, as well as empirical estimates using cross-country data.

How do households cope during aggregate shocks? Evidence from the 2009–2015 oil crisis in Nigeria

The effect of global oil price fluctuations on households' costs of living in Nigeria is examined. We extend the Aggregate Demand/Supply (AD/AS) model by incorporating aggregate shock and idiosyncratic risk with cross-sectional heterogeneity in households' distributions and consumption substitution dynamics. Results from our model show that while positive oil prices reflect higher output, whether growth results from inflation or income-level growth remains unclear ―demand-side inflation will raise price levels, amplify budget constraints and ultimately lower welfare. For the empirical analysis, we use oil prices between 2009 and 2015 and micro-level data from the Nigerian General Household Survey (GHS) collected between 2010 and 2016 in Nigeria. In support, we show that increasing oil prices leads to greater consumption. However, the effect varies heterogeneously ―reflecting households' location and consumption substitution dynamics, adjustments in household size, and labor supply are some coping responses to oil price changes.

Driving forces and typologies behind household energy consumption disparities in China: A machine learning-based approach

Establishing an intuitive link between driving factors of household energy consumption activities and inequalities is important for the understanding of household heterogeneity in energy consumption behaviours. This paper proposes a novel typology framework based on machine learning approaches and data from 3637 Chinese households in 2014 from 85 cities. Activity-based energy consumption was measured, highlighting inequalities across activities, regions and household types. The results showed significant energy consumption disparities between urban/rural and north/south households, especially in cooking, space heating and vehicle activities. By identifying driving factors of energy consumption, a new household typology classified samples into 6 (all), 6 (urban) and 7 (rural) types. Within these types, households with similar demographic structures, lifestyles and energy consumption habits were clustered. Demographic structure, region, and primary energy demand were used as the basis for the typology. The findings demonstrated how household lifestyle differences explained the cause and underlying driving factors of urban-rural energy consumption inequalities and provided suggestions for city-by-city and type-by-type measurements to support effective low-carbon transformation in cities.

Climate-related Disaster and Human Capital Investment in the Global South — Household Heterogeneity and Growth

This study develops a dynamic model of climate-related disaster impacts, considering multidimensional household heterogeneity, for analyzing changes in growth and inequality in low-income countries. Focusing on human capital development, the study demonstrates the multiple impacts of disaster risk reduction (DRR) policies on human capital investment, including the effect of schooling opportunities for households constrained by the subsistence consumption constraint. Through numerical simulations performed for two economies that differ in terms of human capital, modeled after Madagascar and Fiji, it is illustrated that the possibilities of involuntary unemployment and the work-learning choice drive the diversity in macroeconomic impacts of a disaster. In an economy characterized by low levels of human capital, a disaster could cause an increase in labor supply in the immediate aftermath but interrupt human capital formation, impeding long-term growth and human capital formation. Such a result contradicts prevailing intuition by demonstrating that a disaster occurring in an economy under recession may not result in a large adverse GDP impact in the short run but may negatively impact growth in the long run. On such a path, a policy of development in DRR infrastructure with appropriate taxation could reduce human-capital gaps in the long run by supporting continued post-disaster human-capital-investment opportunities for the poor.

Does waste management policy crowd out social and moral motives for recycling?

Social and moral motivations can influence households’ decisions regarding pro-environmental behavior, such as recycling. In a theoretical framework that allows for these motivations, we analyze how policies such as unit pricing and mandatory recycling affect whether and, in the presence of heterogeneous households, the extent to which a society recycles. We show that unit pricing enhances the effect of intrinsic motivation while mandatory recycling can erode it (depending on the marginal utility of self-image and the recycling cost-to-benefit ratio). We empirically investigate the relationship between policy and intrinsic motivation, using different cutoffs for recyclers and non-recyclers, and find support for our theoretical predictions.

Ten questions concerning building electrification

Building electrification is the movement to shift building operational energy use from fossil fuels toward electricity. It has been pursued mainly to reduce greenhouse gas (GHG) emissions from the building sector. We present here ten questions concerning building electrification and attempt to answer them in the context of the existing literature. Our questions span dimensions of policy, life cycle impacts on energy and environment, technological advances and challenges, indoor and outdoor air quality, health, economics, and social-behavioral factors. We find that while much of the extant research predicts that building electrification will provide benefits in terms of GHG emissions, pollutant exposures, and economic impacts, it remains limited to a narrow set of geographic regions and typically fails to capture the full extent of life cycle environmental impacts. Additionally, despite logical inferences for likely health benefits, we were unable to identify explicit studies of the health impacts of building electrification. We also find a common theme that, for building electrification to be successful in reducing GHG emissions, costs, and adverse grid impacts, it should be approached in parallel with increased building energy efficiency, grid renewable power, and smart grid infrastructure. Finally, we find that people hold strong opinions about fuel options in their homes, and the relationship between preferences and energy use is complicated. To shift people's beliefs around electrification, government-originating communications can highlight the benefits, but one must still account for heterogeneous household conditions. We conclude by suggesting key research areas needed to approach building electrification effectively and equitably.

Reading consumers’ minds: an analysis of inflation expectations

ABSTRACT The heterogeneity in households’ consumption baskets is often deemed responsible for deviation of their inflation expectations from headline inflation. The paper verifies this by simulating population baskets and estimating mean inflation by sampling baskets. The estimated mean inflation fails to display closeness with survey numbers. Therefore, the paper proposes alternative logical methods for designing basket compositions and identifies the most suited method using which the estimated expectations are found to be close to and well-correlated with survey numbers. The findings suggest that a sudden rise in inflation of regular-use items can explain the deviation in households’ expectations from official inflation.

A DSGE Model with Government-owned Banks

Abstract How relevant are government-owned banks in the economy, especially during recessions? We study the role of government-owned banks in a dynamic stochastic general equilibrium (DSGE) model with heterogeneous financial intermediaries, heterogeneous households, and minimum capital requirement constraints. We show that the capitalization of government-owned banks during recessions smooths the effects of a negative shock and helps the economy recover more quickly. However, these stabilizing effects could be partially offset by banks’ inefficiency in transforming one unit of capital into loans. Therefore, ignoring the heterogeneity between private and government-owned banks may lead to misleading assessments and conclusions regarding the effects of economic policies on the macroeconomic and banking variables. This is particularly important for evaluating the effectiveness of macroprudential policies.

Ambiguity Aversion and Heterogeneity in Households’ Beliefs

UK households that wish for lower inflation and lower nominal interest rates have higher expected inflation. We interpret the evidence through the lens of a New Keynesian model where ambiguity-averse households differ in wealth, skill, labor market participation, and the receipt of government transfers and are subject to Knightian uncertainty. Households act based on beliefs that are negatively affected by their wishes, the more so the greater the amount of uncertainty. Using indirect inference, we find substantial output costs due to uncertainty. Monetary policy uncertainty contributes little to the costs because households generally dislike monetary expansions. (JEL D12, D81, D83, E12, E31, E43, E52)

Consumer demand and the economy-wide costs of regulation: Modeling households with empirically estimated flexible functional forms

This paper estimates flexible demand systems for heterogeneous households in the United States and links the estimated parameters with an economy-wide model to assess their relative contributions to the social cost of regulation. We estimate elasticities for several final demand categories as well as labor-leisure elasticities that are important for calibrating the labor-leisure choice in the economy-wide model and find that estimated elasticities are relatively similar across regions but vary meaningfully by income. Using the estimated elasticities, we explore the implications of both the functional form and its parameterization in a simplified computable general equilibrium model for the social and distributional costs of illustrative policy scenarios. Model variants with less flexible consumer demand systems overestimate social costs across our entire range of scenarios. Furthermore, we find that parameterizing the model with elasticities that vary with household income is important for adequately characterizing the distributional implications of a policy.

The consumption expenditure response to unemployment: Evidence from Norwegian households

This paper examines heterogeneity in household income and consumption responses to unemployment, using granular administrative tax data from Norway. On average, unemployment results in a significant, lasting income reduction, accompanied by a decrease in consumption expenditures of between one-third to one-half of the income loss. We find that households with greater liquid assets at the outset experience less of a decline in consumption, whereas those with higher levels of debt encounter a more substantial decrease. Notably, also the interaction of liquid assets and debt holdings matters for the consumption response. While households with larger initial liquid asset holdings on average respond less, the analyses show that this is not the case among households that simultaneously hold substantial amounts of debt, thus adding to a more nuanced view of the importance of household heterogeneity for economic outcomes. Furthermore, our investigation into heterogeneity across family composition and child age uncovers distinct patterns in consumption responses, highlighting the varied impacts of unemployment. Lastly, we find that spending patterns, as indicated by the marginal propensity to consume (MPC), become more pronounced during recessions.

Spatioethnic Household Carbon Footprints in China and the Equity Implications of Climate Mitigation Policy: A Machine Learning Approach

This article relies on the first and only representative survey data to estimate household carbon footprints (CFs) of China’s large yet vastly understudied ethnic minority population, documenting for the first time significant ethnic disparities in CFs driven by ethnic minorities’ relatively worse-off living standards: From 2010 to 2020, China’s ethnic minority population contributed less than 6 percent of residential emissions, about 50 percent less than expected based on population share alone. Next, results from a counterfactual policy analysis find that the distributive effects of a carbon tax are regressive in urban areas but not in rural areas, increasing within and between ethnic group inequality in urban China. A carbon tax with revenue-neutral schemes, by contrast, helps to mitigate existing inequalities in society, reducing income- and ethnic-based forms of inequality. Results are robust to machine learning techniques employed to simulate potential heterogeneous household abatement scenarios. The findings emphasize the potential benefits of a carbon tax, contributing to a more comprehensive understanding of climate justice and informing policy decisions that promote equitable outcomes for vulnerable segments of society.

Precautionary Money Demand in a Cash‐in‐Advance Model

AbstractWhile numerous studies in monetary economics explore inflation, interest rates, stock returns, and money velocity, a model seamlessly linking these interactions remains elusive. One crucial omission in this literature is idiosyncratic precautionary money demand, a prominent feature in the data. This paper addresses this gap by presenting a simple model where precautionary money demand arises from heterogeneous household liquidity needs. Despite its intricate heterogeneity, the model allows straightforward aggregation, enabling analysis of its implications for household portfolios composed of cash, government bonds, and equities. The empirical analysis spans the period 1959.I–2022.I. Notably, the model captures crucial time‐series properties that models without the idiosyncratic element fail to achieve.