Group Consumption with Caring Individuals: KU Leuven Discussion Paper Series DPS17.15 November 2017

textabstractWe propose a novel approach to model joint consumption decisions of individuals who care for each other. We assume non-cooperative interaction between the different individuals and the within-group consumption outcome critically depends on the degree of caring between the group members. By varying the degree of caring, the model encompasses a whole continuum of group consumption models that are situated between the fully cooperative model (assuming a Pareto optimal outcome) and the non-cooperative model without caring (assuming a public good game with voluntary contributions). This feature is used to define a measure for the degree of cooperation within the group, which quantifies how close the observed group behavior is to the fully cooperative benchmark. We also establish a dual characterization of our non-cooperative model with caring preferences: we show that the model is dually equivalent to a non-cooperative model with non-caring preferences that is characterized by intra-group transfers. Following a revealed preference approach, we derive testable implications of the model for empirical data. Finally, we also use our model to analyze decisions made by dyads of children in an experimental setting. We find considerable heterogeneity in the degree of caring (or cooperation) across dyads, which correlates with assertiveness and the degree of interaction within dyads