Essays on intrahousehold allocation

Abstract

Using a change in the Family Allowance/Child Benefit policy in the UK as a natural experiment, several economic hypotheses of considerable importance are tested. These hypotheses concern the allocation of resources and welfare within families, and decision-making processes which generate that allocation.Data on two-parent families is used to test the income-pooling hypothesis implied by unitary household models. Both expenditure patterns and labor supply behavior responded to the change in the distribution of household income among members in a way that is not consistent with unitary models. These results imply that targeted welfare improvements will not necessarily be negated by the household allocation mechanism, in contrast to the implications of unitary models.Private transfer income received by lone mothers does not respond negatively to an increase in a public transfer, as some economic models would predict. Results for private transfer income are more consistent with exchange and "warm glow" motives than with altruism. Labor supply and earnings also do not adjust downward when the Child Benefit increases for the sample of lone mothers who work in the market. Changes in expenditure patterns among lone-mother families are not generally towards child goods, as would be consistent with a labeling effect. Expenditure results are suggestive of low bargaining power held by children in these household.