Latest Working Papers
1. Income Shocks and their Transmission into Consumption (April 2024)
with Edmund S. Crawley
This article reviews the economics literature of, primarily, the last 20 years, that studies the link between income shocks and consumption fluctuations at the household level. We identify three broad approaches through which researchers estimate the consumption response to income shocks: 1.) structural methods in which a fully or partially specified model helps identify the consumption response to income shocks from the data; 2.) natural experiments in which the consumption response of one group who receives an income shock is compared to another group who does not; 3.) elicitation surveys in which consumers are asked how they expect to react to various hypothetical events.
2. Consumption Partial Insurance in the Presence of Tail Income Risk (updated: September 2023) -- Submitted
with Anisha Ghosh
We measure the extent of consumption insurance to income shocks accounting for high-order moments of the income distribution. We derive a nonlinear consumption function, in which the extent of insurance varies with the sign and magnitude of income shocks. Using PSID data, we estimate an asymmetric pass-through of bad versus good permanent shocks – 17% of a 3σ negative shock transmits to consumption compared to 9% of an equal-sized positive shock – and the pass-through increases as the shock worsens. Our results are consistent with surveys of consumption responses to hypothetical events and suggest that tail income risk matters substantially for consumption.
3. Commitment and the Dynamics of Household Labor Supply (February 2024) -- Conditionally accepted, Economic Journal
with Jorge Velilla, Pierre-André Chiappori, J. Ignacio Gimenez-Nadal, Alberto Molina
The extent to which individuals commit to their partner for life has important implications. This paper develops a lifecycle collective model of the household, through which it characterizes behavior in three prominent alternative types of commitment: full, limited, and no commitment. We propose a test that distinguishes between all three types based on how contemporaneous and historical news affect household behavior. Our test permits heterogeneity in the degree of commitment across households. Using recent data from the Panel Study of Income Dynamics, we reject full and no commitment, while we find strong evidence for limited commitment.
Publications
1. Togetherness in the Household - American Economic Journal: Microeconomics, 15(1), 2023
with Sam Cosaert, Bertrand Verheyden
Spending time together with a spouse is a major gain from marriage. We extend the classical collective model of the household to allow for togetherness between spouses. Togetherness takes the form of joint leisure and joint care for children. Using revealed preferences conditions and Dutch data over years 2009-12, we find that households are willing to pay €1.2 per hour -10% of the average wage- to convert private leisure to joint, and €2.1 per hour to convert private childcare to joint. Our results suggest togetherness is an important component of household time use despite being overlooked in the economics literature.
2. Consumption Inequality across Heterogeneous Families - European Economic Review, 136, 2021
What does preference heterogeneity imply for consumption inequality? This paper studies the link from wage to consumption inequality within a lifecycle model of consumption and family labor supply. Its distinctive feature is that households have general heterogeneous preferences over consumption and labor supply. The paper shows identification of the joint distribution of unobserved household preferences separately from the observed distributions of incomes and outcomes. Estimation on data from the Panel Study of Income Dynamics in the US reveals substantial unexplained heterogeneity in consumption preferences but little unexplained heterogeneity in labor supply preferences. Preference heterogeneity accounts for about a third of consumption inequality in recent years and implies, on average, lower partial insurance of wage shocks compared to recent studies in the literature.
Other Working Papers
1. Intrahousehold Commitment and Intertemporal Labor Supply (July 2020)
with Pierre-André Chiappori, José Alberto Molina, J. Ignacio Gimenez-Nadal, Jorge Velilla
This paper studies household labor supply, within the context of an intertemporal collective model, and three prominent intrahousehold commitment regimes: full commitment, no commitment, and limited commitment. We propose a test that distinguishes among all three alternatives based on how contemporary and historical changes to the economic environment affect household behavior. We implement the test on recent data from the Panel Study of Income Dynamics in the US (1999-2017). Although couples and singles behave similarly in many aspects, couples’ labor supply exhibits distinctive features that are consistent with limited commitment. We then use our results to highlight several issues and caveats that arise when testing for commitment.
2. Wages and Family Time Allocation (February 2018)
This paper examines changes in married people's allocation of time since 1980, a period in which female labor supply increased substantially, men's share of household work rose, and the gender wage gap narrowed down. I develop a life-cycle collective household model for market and non-market work, consumption and asset accumulation, which also features lack of commitment to lifetime marriage. Wages in the model shift intra-family bargaining power and induce bargaining effects on outcomes in addition to standard income and substitution effects. I estimate gender-specific preferences and how intra-family bargaining power changes with a narrowing gender gap using data from the PSID. The results suggest that a narrowing gender gap improved women's bargaining power in the family resulting in a shift of household work to their husbands. It also contributed to the increase in female labor market participation. If the gender gap is counterfactually eliminated, the proportion of women in full-time work rises throughout the lifecycle to match approximately that of men. The increase comes from women who cut down household chores and enter the labor market when they previously did not participate.
3. Consumption Dynamics and Allocation in the Family (September 2016)
This paper studies how individual and total consumption in the family respond to idiosyncratic wage changes using a collective life-cycle model for a family of two decision-making spouses. The model incorporates endogenous family labor supply, public and private consumption, asset accumulation, correlated wage shocks, and general nonseparable, spouse-specific preferences. Wages enter the household budget constraint, but also the spouses' intra-family bargaining powers implying lack of spousal commitment to future allocations. I derive analytical expressions for the dynamics of earnings and consumption; I show how those can be used to identify the household structure (spouse-specific preferences, allocation of consumption between spouses, a rich set of bargaining effects) with panel data on hours, earnings, assets, and household-level consumption only. The identifying assumption is that spouses have the same preferences with their single counterparts. Preliminary evidence from the PSID suggests strong labor and consumption response to wage shocks and that hours and consumption are substitute goods at the intensive margin of labor supply. Wages have an economically significant effect on intra-family bargaining power, but not statistically so.
Selected Work in Progress
1. Spatial Inequality in Lifetime Income
with Suphanit Piyapromdee, Ignasi Merediz-Solà
2. Family Time Allocations over the Last Half Century
3. Intrahousehold Commitment and Intertemporal Labor Supply: the case of Europe
with Pierre-André Chiappori, José Alberto Molina, J. Ignacio Gimenez-Nadal, Jorge Velilla
4. Spending Time and Money in the Household: A new Characterization of the Retirement-Consumption Puzzle
with Olivier Bargain, Olivier Donni, Arthur Lewbel
5. Unemployment Insurance in the Family
with Tom Potoms
Policy Work
1. Economic effects of Covid-19 in Luxembourg (April 2020)
with several researchers and policy makers in Luxembourg
In this working note, a group of economists based in Luxembourg join forces to assist the Task Force for the Coordination of the Public Research Sector in the Context of the Covid-19 Pandemic. We aim to provide knowledge on the economic issues related to the Covid-19 crisis. We provide a summary of ongoing research, proceed to back-of-the-envelope estimations of the direct economic impact of the health crisis and resulting policy measures, anticipate forces that may drive to a breakdown of the global economic system, discuss the policy options that are available to decision makers to mitigate the short-run costs and the risk of a systemic collapse, and provide suggestions for future research.