Life-Cycle Consumption: Can Single Agent Models Get it Right?

Alexander Bick
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Alexander Bick: Goethe University Frankfurt

No 940, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: In the quantitative macro literature, single agent models are heavily used to explain "adult equivalent" household data, a common example being household consumption deflated by some form of equivalence scale. In this paper, we study differences between the consumption of single agent models and the "adult equivalent" household consumption from a model where household size is taken into account. Using a theoretical model we prove that, under mild conditions, these predictions are different. Through a quantitative exercise, we then document that these differences can be substantial with a large variation over the life-cycle.

Date: 2011
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