Estimation of the Sharing Rule between Adults and Children and Related Equivalence Scales within a Collective Consumption Framework

Abstract: In order to determine how much money is needed to make each household member as well off as they were before a change in living conditions, equivalence scales should be defined on the ba-sis of individual rather than household welfare. This requires the knowledge of individual utilities that are derivable from the identification of the rule governing the intra-household allocation of resources within a collective approach. We pursue this objective using information about male, female and chil-dren clothing expenditure present in the 1999 Italian Household budget survey within the estimation of a complete demand system. The sharing rule between adults and children is estimated using a structural rather than a reduced form approach. Maximum simulated likelihood is used to estimate a collective model of individual demand equations with zero expenditures for the exclusive good cloth-ing. The recovery of individual utilities for adults and children permits the estimation of the cost of children taking the intra-household distribution of resources into account. We show that the cost of Italian children is significantly affected by the parents ’ aversion to intra-household inequality. Acknowledgments: The authors would like to thank Martina Menon, Eugenio Peluso, Marcella Veronesi and the participants to the Workshop on “Equivalence Scales, Household Behavior an