Is the Allocation of Resources within the Household Efficient? New Evidence from a Randomized Experiment * Gustavo J. Bobonis University of Toronto and CIFAR Current version: November 2008 First version: October 2004 Abstract : This paper studies whether households make Pareto-efficient intra-household resource allocation decisions. It sets out a new empirical test of the collective model that exploits exogenous variation in two distribution factors – variables affecting the resource sharing rule within households. Such variation is necessary to test the condition that consumption good demand responses are proportional to changes in the distribution of decision-makers’ resources. Combining randomized variation in women’s income generated by the experimental evaluation of the PROGRESA program in rural Mexico with general household income variation attributable to localized rainfall shocks, we find evidence favoring the Pareto-efficiency condition. More specifically, we find that female-specific income changes have a substantial positive effect on food expenditures and expenditures on children’s goods, whereas income changes due to rainfall shocks have a smaller influence on household public goods expenditures. The evidence is consistent with female partners having greater marginal willingness-to-pay sensitivity to own-income changes, and social norms which may oblige women to devote their earnings to meet collective consumption needs. Keywords: intra-household allocation, collective model, Pareto efficiency, identification, social norms JEL Classification Numbers: D13, J16, I38 _____________________ * A previous version of the paper was circulated under the title, “Income Transfers, Marital Dissolution, and Intra-Household Resource Allocation: Evidence from Rural Mexico” (November 2004). I am grateful to David Card, Ken Chay, Ronald Lee, and Ted Miguel for their guidance, as well as the editor (Steven D. Levitt) and two anonymous referees, whose suggestions greatly improved the paper. I also thank Tania Barham, Dwayne Benjamin, Julian di Giovanni, Claudio Ferraz, Chuan Goh, Melissa González-Brenes, Sebastian Martinez, Manisha Shah, Aloysius Siow, seminar and conference participants at Arizona, UC Berkeley, IFPRI, Maryland, NEUDC 2004, Toronto, UNC-Chapel Hill, Wesleyan, and especially Rob McMillan, for helpful comments. Finally, I would also like to thank Caridad Araujo, Paul Gertler, Iliana Yaschine, and the staff at Oportunidades for providing administrative data and for their general support throughout. Research support from the Institute of Business and Economics Research at UC Berkeley, NICHD Training Grant (T32 HD07275), and SSHRC is gratefully acknowledged. I am responsible for any errors that may remain. Contact : Gustavo J. Bobonis, Department of Economics, University of Toronto, 150 Saint George Street, Toronto, Ontario, M5S 3G7, Canada. Tel: 416-946-5299. E-mail: gustavo.bobonis@utoronto.ca .