SGER: Individual Euler Equations and Household Euler Equations: Identification and Estimation Using Household Data

University Of Wisconsin-Madison, Madison WI

Investigators

Abstract

The standard approach to modeling household intertemporal optimization is to assign a unique utility function to the entire household, derive household Euler equations, and then estimate intertemporal elasticities of substitution. This research explores the use of individual Euler equations for each household member. The focus is on the identification and estimation of individual Euler equations when only total household consumption, individual labor supplies, wages, and interest rates are observed. If successful, the research can inform several key policy questions, and can potentially rationalize observed changes in family composition and household labor supply.