Resource Sharing and Scale Economies in Large Families

The structure of a family may have important consequences for the material well-being of its members. For example, in large families, an individual must share resources with many others, but she may benefit from joint consumption. In this paper, we study individual consumption in different types of households, with a focus on family structures that are common in developing countries. Based on a collective household model, we develop a new methodology to identify the intra-household allocation of resources and the extent of consumption sharing. We apply our method to Bangladeshi and Mexican households, and find that failing to account for intra-household inequality understates child poverty in both countries. Our results suggest that standard equivalence scales overstate scale economies (and hence understate poverty). We also show that consumption estimates that ignore scale economies may lead to an overestimation of poverty rates. The extent to which this is the case depends on the degree of joint consumption and how far households are from the poverty line.