Rational Household Labor Supply

TLDR

Traditionally, household behavior is derived from the maximization of a unique utility function. The paper proposes modeling the household as a two‑member collectivity making Pareto‑efficient decisions. The authors analyze this assumption in a three‑good model where only total consumption and each member’s labor supply are observable. When agents are egoistic, falsifiable conditions on household labor supplies can be derived parametrically and nonparametrically; when agents are altruistic, nonparametric restrictions arise and the results can be interpreted by comparing with aggregate demand in a private‑good economy.

Abstract

Traditionally, household behavior is derived from the maximization of a unique utility function. In this paper, we propose an alternative approach, in which the household is modeled as a two-member collectivity taking Pareto-efficient decisions. The consequences of this assumption are analyzed in a three-good model, in which only total consumption and each member's labor supply are observable. If the agents are assumed egoistic (i.e., they are only concerned with their own leisure and consumption), it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint. If, alternatively, agents are altruistic, restrictions obtain in the nonparametric context; useful interpretation stems from the comparison with the characterization of aggregate demand for a private-good economy.