Household Intertemporal Behavior: a Collective Characterization and Empirical Tests

In this paper, each household is characterized as a group of agents making joint decisions. Under the assumption of full efficiency, it is shown that households with several adults can be characterized by a unique utility function if and only if individual members have identical discount factors, HARA utility functions with identical curvature parameter and identical beliefs. If this conditions are violated, the household objective function and consequently Euler equations depend on the decision power of each spouse. If the assumption of full efficiency is relaxed, I find that standard Euler equations of couples are replaced by inequalities, even if the restrictions are satisfied. However, the Euler equations of singles should be fulfilled with and without efficiency. Using the PSID as well as the CEX, these theoretical implications are tested. I find that the standard model of household intertemporal behavior is consistent with the consumption pattern of singles, but not with the consumption behavior of couples. Finally it is shown that full efficiency has different predictions for household Euler equations from the limited commitment version of the model. These predictions will be tested using both the PSID and the CEX.

For more information, contact Jere Behrman.

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