Income and Outcomes: A Structural Model of Intrahousehold Allocation

TLDR

Households are not single decision makers, and relative incomes influence allocation decisions, assuming efficient household processes. The study develops a method to identify how incomes affect outcomes using conventional family expenditure data. The method uses conventional family expenditure data and is applied to Canadian couples without children. Expenditure allocations depend significantly on partners’ relative incomes, ages, and lifetime wealth.

Abstract

There is evidence from several sources that one cannot treat many-person households as a single decision maker. If this is the case, then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household. We develop a method of identifying how "incomes affect outcomes" given conventional family expenditure data. The basic assumption we make is that household decision processes lead to efficient outcomes. We apply our method to a sample of Canadian couples with no children. We find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth.