Parents’ Preferences for Expenditure on ChildrenWhen at Least One Parent Works and Preferences are Non-Separable

Abstract

The evaluation of policies designed to increase the early investment in children requires knowledge of the parents’ preferences for expenditure on children. In this paper it is shown that these preferences can be recovered using variables available in commonly used datasets. The method proposed in this paper improves upon the approach developed by Blundell, Chiappori, and Meghir (2005) in two ways. First, it only requires that one parent supplies a positive amount of labor. In the PSID, 98% of families with children have at least one parent who participates in the labor market. The method proposed by Blundell, Chiappori, and Meghir (2005) requires that both parents work. In the PSID, both parents work only in 64% of families with children. Second, the approach presented in this paper does not require that the parents’ preferences are separable in expenditure on children or the availability of a distribution factor.