Research Sam Cosaert

Abstract

Non-pecuniary factors influence people's willingness-to-work, but most labor supply models abstract from this. According to these models, labor supply is the result of a trade-off between consumption and free time. The problem is that this overestimates the individual cost of work (because part of work can be enjoyable, like free time) and underestimates the cost of work for the household (because market work by one individual can disrupt work-life balance for all members). This proposal, NONPECUN, adjusts state-of-the-art labor supply models to make them more suitable to studying non-pecuniary aspects of work. NONPECUN has three related work packages. WP1 models the idea that workers enjoy part of their work as leisure. WP2 proposes a structural analysis of job choice with non-pecuniary characteristics. WP3 finally zooms in and studies disutility spillovers between spouses in a collective framework. We test these models nonparametrically. In principle, the nonparametric approach –combined with less tangible benefits and costs of work– hampers empirical tractability. This is why NONPECUN relies on the Longitudinal Internet Studies for the Social sciences. The LISS has information on Dutch household characteristics, economic outcomes, and social and personal attributes. Data on experienced utility from work [WP1], job amenities [WP2], and conflicting opinions in households [WP3] help to discipline fundamental elements of the models and to sharpen their testable implications.

Researcher(s)

• Promoter: Cosaert Sam

Research team(s)

• Economics

Project type(s)

• Research Project

Abstract

Individuals care not only about income per se, but also about how much they earn compared to others. Social comparisons and interdependent preferences have a profound effect on individual welfare. With negative interdependent preferences, better material outcomes for peers reduce the well-being of the individual. Social comparisons also shape the behavior of individuals. To describe, explain, and predict this behavior, the current proposal (STANDING) incorporates social comparisons in state-of-the-art labor supply models. The research has two distinguishing features. First, it shifts attention from identifying peer groups –a notoriously difficult task– to discovering properties of the relative income concerns. STANDING focuses on relative income concerns between given parties (players in an experiment, spouses in a couple) or simply uses reference points stated by the respondents. This will facilitate integration of social comparisons in commonly used economic models. Second, STANDING will develop novel nonparametric, revealed preference, methods to bring the models to the data. These methods impose very few ad-hoc restrictions on the preferences for material outcomes and relative income, and this allows a robust analysis of the latter. STANDING will use the new structural analysis, based on revealed preference methods, to study interdependent preferences in a variety of contexts. First, individuals who dislike their position in the income distribution may be willing to reduce others' –and own– income to improve it. Money burning experiments demonstrated that individuals sometimes destroy others' pay-offs even if this is costly. This raises the question whether choices driven by negative interdependent preferences are still consistent with basic economic theory. WP1 implements a modified version of the money burning experiment that is well-suited for testing choice consistency. Second, a household may judge its position in the income distribution by the visible consumption of others. But visible, conspicuous consumption sends biased signals about the true income distribution. What is the effect of misperceptions on the household's willingness-to-work? WP2 builds a model in which households value leisure and their (perceived) position in the income distribution. The perceived position may differ from the actual one. A counterfactual analysis will demonstrate how misperceptions distort labor supply decisions. Finally, negative interdependent preferences may also exist within (!) the household, in the form of gender identity norms. How will female labor supply respond to a wage raise if there are strong breadwinner norms in favor of the husband? WP3 proposes a structural nonparametric analysis of interdependent preferences in the household. This can be used outside specially tailored laboratory experiments. We will apply the analyses of WP2 and WP3 to data from the Longitudinal Internet Studies for the Social sciences in the Netherlands. This dataset contains detailed information on perceived income distributions and gender norms.

Researcher(s)

• Promoter: Cosaert Sam
• Fellow: Daans Jasper

Research team(s)

• Economics

Project type(s)

• Research Project

Abstract

It is now widely recognised that social interactions play a crucial role in economic decision-making and outcomes. Taking such interactions into account is of first-order importance to identify the true mechanisms underlying microeconomic behaviour and to assess individual and social welfare. Almost all empirical work that studies these interactions, however, proceeds by invoking strong parametric assumptions in the econometric model. This does not only obfuscate the empirical content of the model; it also leads to biased estimates, and therefore to biased conclusions. In response to these issues, this project makes a double contribution. First, I will develop a flexible model that significantly generalises the widely-applied linear-in-means model of social interactions, in which the outcome of an individual arbitrarily depends on the characteristics and outcomes of her connections. I will subsequently show that this model can be identified and estimated with nonparametric IV techniques using the average characteristics of connections-of-connections as an instrument, extending previous results from a linear to a nonlinear context. Second, I will investigate the channels through which social interactions can arise in structural models of demand. Drawing from the literature on differential demand and revealed preferences, I will then characterise what are the testable implications of these models. An experiment will empirically validate various specifications of the model.

Researcher(s)

• Promoter: Cosaert Sam
• Fellow: Maes Sebastiaan

Research team(s)

• Economics

Project type(s)

• Research Project

Abstract

The aim of this project is to explicitly integrate marriage decisions in the wider context of household decisions when divorce is a possible option. This project wants to better understand the interplay between the search for partners, household formation and economic decisions. The idea is that making an investment in the ability to search for a better partner affects the characteristics of the match, but also the bargaining position in the relationship by determining the quality of the outside options in case of divorce. We will introduce search frictions in the marriage market using two approaches. First, we will propose a matching model where search frictions are captured by a matching function. Secondly, motivated by the empirical observation that most spouses meet through friends, we will study a marriage market where the choice of partners is constrained by one's social networks. We will estimate non-parametrically the models using revealed preferences to provide a structural description of the within-household allocation as a function of the search behavior defining the current and future outside options on marriage markets. Overall, modeling search behavior implies a better description of the intra-household decision process, which in turn yields a more powerful analysis of household choice behavior and its welfare implications on spouses and their children.

Researcher(s)

• Promoter: Cosaert Sam
• Promoter: Merlino Luca Paolo

Research team(s)

• Economics

Project type(s)

• Research Project