Working Paper: NBER ID: w20191
Authors: Pierre-André Chiappori; Costas Meghir
Abstract: 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.
Keywords: Intrahousehold Inequality; Welfare Distribution; Resource Allocation
JEL Codes: D1; D11; D12; D13; D31; D6; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Traditional measures of inequality (D31) | Misleading conclusions about welfare distribution (D30) |
| Ignoring public goods and allocation of time (H40) | Inadequate measures of welfare distribution (D63) |
| Pre-divorce distribution of resources assumed equal (D30) | Erroneous conclusions about increase in inequality post-divorce (J12) |
| Sharing rule derived from household data (R20) | Essential for understanding intrahousehold welfare (D13) |
| Money metric welfare index (I31) | Fully captures utility levels (L94) |
| Complexities of public goods consumption and domestic production (H41) | Complicate analysis of intrahousehold inequality (D13) |