Kiel Working Papers, Kiel Institute for World Economics
No 1663:
Confronting the Representative Consumer with Household-Size Heterogeneity
Christos Koulovatianos, Carsten Schröder and Ulrich Schmidt
Abstract: Much analysis in macroeconomics empirically addresses
economy-wide incentives behind consumer/investment choices by using
insights from the way a single representative household would behave.
Heterogeneity at the micro level can jeopardize attempts to back up the
representative consumer construct with microfoundations. One complex aspect
of micro-level heterogeneity is household size, as individuals living in
multi-member households have the potential to share goods within the
household, benefiting from household-size economies. Theoretically, we show
that validating the role of a representative consumer would require that
the way individuals benefit from intra-household sharing is strictly
aligned across the rich and the poor: once expenditures for subsistence
needs are subtracted from disposable household income, household-size
economies the remainder (discretionary) household incomes entail must be
the same across the rich and the poor. We have designed a survey method
that allows the testing of this stringent property of intra-household
sharing and find that it holds
Keywords: Linear Aggregation, Equivalent Expenditures, Survey Method, Household-Size Economies; (follow links to similar papers)
JEL-Codes: C42,; E21,; D12,; E01,; D11,; D91,; D31,; I32; (follow links to similar papers)
86 pages, September 2010
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