Health and Retirement Effects in a Collective Consumption Model of Elderly Households

Using data on older individuals and couples, we estimate a collective model of household consumption of a variety of goods, showing how resources are shared between husbands and wives, and how this allocation is affected by retirement and health status. We identify the extent to which shared consumption of goods by older married couples reduces the costs of living together relative to living alone. We also identify the fraction of household resources consumed by wives versus husbands, taking the jointness of some consumption into account. The results are relevant for household bargaining models and for a variety of welfare calculations. Among other results, we find that older couples save between 24 and 40 percent on expenditures by sharing consumption of goods, that older wives consume between 30 and 42 percent of total household expenditures (taking sharing of goods into account), and that these shares are little affected by retirement, but increase dramatically when the husband’s health is poorer.