Models explaining household decisions assume that
the member’s bargaining process, although unknown, leads to
efficient outcomes. The empirical literature has not been able to
reject this hypothesis when tested in several datasets, including those from poor, rich
and emerging countries. I present Monte Carlo simulations to show
that the methods used for testing are inadequate for two reasons.
First, the performance of the test statistic, and in particular
the Type II error, depends on the algebraic formulation of the restriction
to be tested. Second, none of the formulations dominate the other
alternatives. These two factors prevent us from concluding whether
there is enough evidence supporting the assumption of efficient
intrahousehold allocations. Alternative approaches to validate the
test are discussed.
[.pdf]