Revisiting the effect of household size on consumption over the life-cycle

Alexander Bick and Sekyu Choi

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2998-3011

Abstract: Although the link between household size and consumption has strong empirical support, there is no consistent way in which demographics are dealt with in standard life-cycle models. We study the relationship between the predictions of the Single Agent model (the standard in the literature) versus a simple model extension (the Demographics model) where deterministic changes in household size and composition affect optimal consumption decisions. We show theoretically that the Demographics model is conceptually preferable to the Single Agent model as it captures economic mechanisms ignored by the latter. However, our quantitative analysis demonstrates that differences in predictions for consumption are negligible across models, when using standard calibration strategies. This suggests that it is largely irrelevant which model specification is used.

Keywords: Consumption; Life-cycle models (search for similar items in EconPapers)
JEL-codes: D12 D91 E21 J10 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Revisiting the Effect of Household Size on Consumption Over the Life-Cycle (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2998-3011

DOI: 10.1016/j.jedc.2013.08.006

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