Developments in Collective Household Labor Supply Models

In the collective model, individual household members take decisions collectively, based on their individual preferences and under a bargaining process on which the only assumption made is that the resulting intrahousehold allocation is Pareto efficient. Under this seemingly weak assumption, the collective model still generates falsifiable restrictions. The applied literature on the topic started with specifications based on the assumption of egoistic preferences, by which the choice problem can be characterized by a sharing rule that reallocates income across household members. Given this allocation, household members individually decide on labor supply. In the literature, the model evoluted by relaxing the underlying assumptions. Increased attention for the identifying role of intrahousehold bargaining power was introduced with distribution factors. Dropping the assumption of egoistic preferences allowed for public goods within the household, which opens the way to incorporate policies targeted to specific household members. The initial neglect of corner solutions was relaxed to allow for nonparticipation in the estimation of model parameters. Theory and empirical applications aimed to include nonlinear budget sets to allow for the analysis of intrahousehold welfare implications of tax policies. Introducing dynamics in the collective model reveals the importance to know how commitment mechanisms evolve over time.