Individual Rather Than Household Euler Equations: Identification and Estimation of Individual Preferences Using Household Data∗

In this paper it is shown that the intratemporal and intertemporal preferences of each decision maker in the household can be identified even if individual consumption is not observed. This identification result is used jointly with the Consumer Expenditure Survey (CEX) to estimate the intratemporal and intertemporal features of individual preferences. This paper is one of the first attempts to provide estimates of the wife’s and husband’s intertemporal preferences by taking into account that household behavior is the outcome of joint decisions. The empirical findings indicate that there is heterogeneity in intertemporal preferences between wife and husband. The identification and estimation results are important for at least two reasons. First, they suggest that to answer policy questions the household decision process should be characterized using one set of preferences for each decision maker. Second, the estimates of individual preferences provided in this paper can be used to evaluate policies aimed at affecting household intertemporal behavior. ∗I thank the National Science Foundation for Grant SES-0231560. I am very grateful to Orazio Attanasio, Pierre André Chiappori, Lucas Davis, James Heckman, John Kennan, and Annamaria Lusardi for their insight and suggestions. I would also like to thank the participants at SITE, Econometric Society Summer Meeting, and seminars at CREST-Paris, Duke University, Stanford University, University of California at Berkeley, University of Maryland, University of Minnesota, University of North Carolina, University of Wisconsin-Madison, for their invaluable comments. Errors are mine. †Duke University; email address: [email protected].