Collective Labor Supply and Welfare

The paper develops a general, "collective" model of household labor supply in which agents are characterized by their own (possibly altruistic) preferences, and household decisions are only assumed to be Pareto efficient. An alternative interpretation is that there are two stages in the internal decision process: agents first share nonlabor income, according to some given sharing rule; then each one optimally chooses his or her own labor supply and consumption. This setting is shown to generate testable restrictions on labor supplies. Moreover, the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule (up to a constant). Finally, the traditional tools of welfare analysis can be adapted to the new setting.