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Title: Household Size and the Demand for Private Goods: United States 1850-2000

Citation Type: Conference Paper

Publication Year: 2005

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Abstract: The average American household today comprises less than four people, compared to seven in 1850. This decline has occurred at all ages and for all birth cohorts. We investigate to what extent this decline can be explained by a rational response to changing economic conditions -- namely, the growth of income per person. We develop a simple theory of household size choice, in which people differ by age, birth cohort, and income. There is an age-specific cost of forming and maintaining a household of a certain size. The benefit from living with other people is a household-specific public good. By choosing the optimal mix of public to private goods, the economies of scale within a household are determined endogenously. We calibrate the model to fit data from the end of the 20th century to date. We use age-specific average household size from the 2000 U.S. Census to pin down the cost of household formation, and Consumer Expenditure Survey data for the 1980-2004 period to calibrate the elasticity of substitution between public and private goods. All things equal, we find that an exogenous increase in GDP per capita can account for 30 percent of the observed decrease in household size over the last 150 years.

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Authors: Tertilt, Michele; Pistaferri, Luigi; Schoellman, Todd

Conference Name: Stanford Institute for Theoretical Economics

Publisher Location: Stanford University, Palo Alto, CA

Data Collections: IPUMS USA

Topics: Family and Marriage, Housing and Segregation

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