EFFICIENT INTRAHOUSEHOLD ALLOCATIONS - A GENERAL CHARACTERIZATION ANDEMPIRICAL TESTS

The neoclassical theory of demand applies to individuals, yet in empir ical work it is usually taken as valid for households with many member s. This paper explores what the theory of individuals implies for hous eholds that have more than one member. We make minimal assumptions abo ut how the individual members of the household resolve conflicts. All we assume is that however decisions are made, outcomes are efficient. We refer to this as the collective setting. We show that in the collec tive setting household demands must satisfy a symmetry and rank condit ion on the Slutsky matrix. We also present some further results on the effects on demands of variables that do not modify preferences but th at do affect how decisions are made. We apply our theory to a series o f surveys of household expenditures from Canada. The tests of the usua l symmetry conditions are rejected for two-person households but not f or one-person households. We also show that income pooling is rejected for two-person households. We then test for out collective setting co nditions on the couples data. None of the collective setting restricti ons are rejected. We conclude that the collective setting is a plausib le and tractable next step to take in the analysis of household behavi or.