Labor Supply, Home Production and Welfare Comparisons

Abstract

We consider the collective model of labor supply with marketable domestic production (Chiappori, 1997). We first show that, if domestic production is mistakenly ignored by the economist, welfare analyses will be probably distorted. Precisely, the identification of "collective" indirect utilities will be generally biased. The direction and the size of the bias depend on the complementarity/substituability of spouses' time inputs in the production process. The identification is unbiased if and only if the production function is additive. We then show that, even if domestic labor supplies are not observed by the economist, (i) market labor supplies have to satisfy testable restrictions, (ii) the structure of the model is partially identifiable so that valid welfare comparisons are still possible. Our identification results generalize Chiappori's (1992) ones.Household, Collective Model, Labor Supply, Home Production, Welfare Analysis, Identification