Author: Tianrong Zhang

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Published: 2023

Total Pages: 0

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Understanding household decisions is crucial for promoting gender equality and economic development. First, individuals in developing countries, especially women, spend more of their lives married. According to UN estimates (2018), 23% of women in the least developed countries are already married by age 19, compared to 3% of women in developed countries. Second, women and children are more likely to be poor than men, even after controlling for total household income (Dunbar et al. 2013). To lift women and children out of poverty, we must first understand the roots of unequal distribution in the household. Lastly, policymakers need to make informed choices that affect intrahousehold dynamics. From the identity of beneficiaries to information disseminated, every policy makes implicit assumptions on household decision-making. Understanding how households make decisions can improve the targeting of anti-poverty programs, reduce poverty of women and children, and promote equitable gender norms. What matters for intrahousehold allocation and the welfare of its members? Empirically, a large literature has proposed that increasing the amount of income controlled by women can increase their bargaining power and improve child development outcomes (e.g. Duflo 2003). Building on this literature, I show that in addition to the amount of income, the observability and the source of one's income also affect household decision-making and investment in children. That is, not all incomes are created equal. The first two chapters of my dissertation study the role of asymmetric information and unobservable income in household allocation. In many developing countries where employment is often informal and volatile, household members cannot perfectly observe each other's income. In the first chapter of my dissertation, I present novel empirical evidence that individuals hide employment income from other household members. Using both field survey data collected in western Kenya and a nationally representative dataset in Indonesia, I find that workers hide up to 20% of their employment income from other household members. I develop a model of strategic hidden income that explains why intrahousehold hidden income can persist in a Nash equilibrium. The key feature of the model is that each member of the household can strategically underreport income, increasing private consumption at the expense of household efficiency. hiding may come at a utility cost, but it allows workers to consume more private goods than otherwise, that is, by engaging in intrahousehold bargaining. In equilibrium, cooperation is endogenous and may be incomplete, as household members collectively allocate reported income, but total income is not allocated efficiently. Empirical tests reject collective rationality and support partial income pooling, which is consistent with strategic hidden income. Hiding is not only large in magnitude, but it is also economically significant. In Kenya and Indonesia, households with measured income hiding consume more private goods (such as tobacco and transfers to extended family) and spend less on groceries. In Indonesia, children in households with measured hidden income consume less protein-rich foods and are more likely to be underweight for their age. However, this effect only manifests when the income is hidden from the wife. These children continue to fare worse as adults, as they are more likely to be underweight (girls) and less likely to be employed (boys). In contrast, income hidden from the husband is not correlated with worse child outcomes. Using experimental methods, I further explore the causal effects of income hiding on household consumption in the second chapter of the dissertation. In a lab-in-the-field experiment, I exogenously vary the observability of experimental endowment that 610 Kenyan couples receive. After receiving the endowment, couples play a modified public goods game, where they first choose how much to allocate to a personal pot and a shared pot, where allocation to the shared pot is doubled and divided between the two spouses. In addition, the participant makes consumption choices out of a menu of common household goods, children's goods, and private goods. While the available consumption choices are the same for personal and household pots, consuming out of the personal pot is unobserved by the spouse. I find that when income is unobservable, both husbands and wives share less with their spouses, which is consistent with income hiding. In addition, husbands consume significantly more private goods when income is unobservable, while wives do not change their consumption behavior. Hiding in the experiment is predicted by high sharing pressure and is positively correlated with survey-based measures of income hiding. In addition to the observability of income, the source of income also matters in household allocation. In the final chapter of the dissertation, I turn to studying a conditional cash transfer program in Mexico, and compare the effects of employment and welfare income on household allocation. Using data from Mexico's Progresa conditional cash transfer program, I show that receiving cash transfers reallocates household resources from adults to children. In contrast, female employment reallocates resources from male household members (men and boys) to female ones (women and girls). This suggests that a policy encouraging female employment can be more effective at decreasing gender inequality than welfare programs providing cash transfers to women.