Testing the Validity of a Single Distribution Factor in a Dynamic Collective Model

Abstract

Identifying a collective household model requires a distribution factor that generates exogenous variation in household members’ bargaining weights. We propose a method to test the exogeneity of a distribution factor. In deriving our test, we assume a general dynamic collective model that allows for intertemporal substitution and home production. We subsequently use our framework to test whether local sex ratio—a popular distribution factor in the literature on intrahousehold resource allocation—satisfies the exclusion restriction required of distribution factors using Japanese and Australian data. We reject the exclusion restriction for both countries. Evidence suggests that this is due to a dependency between the local sex ratio and local gender norms, which in turn affect bargaining weights.