Neoclassical and collective rationality in household labour supply

Abstract

The Neoclassical treatment of household labour supply assumes household members possess identical preferences. Models have emerged which assume separate utility functions for household members where the solution to resource allocation is derived from non-cooperative or bargaining games. It can be argued that bargaining implies Pareto efficient resources allocation and that non-cooperation is inefficient in the same sense that if individuals cooperated at least one member could become better off without making anyone else worse off. In this paper a revealed preference non-parametric test, first envisaged by Chiappori (1988), is explained, generalized and implemented. This test determines whether data support the hypothesis that householders bargain to a Pareto efficient outcome or not.