Drug Consumption and Intra-household Distribution of Resources:

The Case of Khat in Djibouti

Seminar

Federico PeraliDepartment of EconomicsUniversity of Verona, Italy

Assistance in Institutional Strengthening and Agricultural PoliciesDamascus, September 15 2002

Motivation

Who is better off?

• A poor child living in a rich household or a rich child living in a poor household?

Economists may have something to say in terms of material needs ... less in terms of immaterial needs...

Objectives

• Identify the sharing rule between adults and children in Djiboutian families

• We use Khat consumption and expenditures on children’s education to learn about the intrahousehold decision process

• Definition. Sharing rule: is the rule governing the intrahousehold allocation of resources (money, time, goods).

• It is a measure of household inequality and of the distribution of power among household members.

• Being a function it is a policy interesting object.

Introduction to the analysis of the intra-household allocation of

resources

• TRADITIONAL APPROACHES: FAMILY AS A “BLACK BOX”

– UNITARY FRAMEWORK: THE FAMILY UTILITY FUNCTION IS INCREASING IN THE UTILITY OF THE MEMBERS, INDIVIDUAL AND HOUSEHOLD WELFARE MOVE IN THE SAME DIRECTION

• ALTERNATIVES APPROACHES: FAMILY AS A DYNAMIC ORGANIZATION OF INDIVIDUALS

Introduction to the analysis of the intra-household allocation of resource

• THE INTRA-HOUSEHOLD ALLOCATION OF RESOURCES IS EXPRESSION OF THE DISTRIBUTION OF THE BARGAINING POWER WITHIN THE FAMILY AND OF THE UNDERLYNG DECISIONAL PROCESSES

• TAKING INTO ACCOUNT THE INTRA-HOUSEHOLD DISTRIBUTION OF RESOURCES IS IMPORTANT TO MESASURE BOTH INDIVIDUAL AND HOUSEHOLD WELFARE

• THE WELFARE OF THE FAMILY MEMBERS DEPENDS ON HOW THE INCOME RECIPIENTS DECIDE TO SHARE THEIR RESOURCES BETWEEN INDIVIDUAL CONSUMPTION AND THE HOUSEHOLD BUDGET

Sociological modelsSociological models

• For a traditional family with the husband as the breadwinner

• ALTRUISTIC HUSBAND

• PATERNALISTIC AND BENEVOLENT HUSBAND

• EGOISTIC HUSBAND

Game theory as an instrument for Game theory as an instrument for interpreting the allocation interpreting the allocation

mechanismmechanismFamily decisions as a bargaining problem

• COOPERATIVE MODELS

)],(|),(max[ fffmmm lxUlxU)],()1(),(max[ fffmmm lxUlxU

å £å å=

f,m

iiiij

f,m

ix

N

jyhwxp

1,

ii hTl =

,0,0,0 iiij hlx

Game theory as an instrument for Game theory as an instrument for interpreting the allocation interpreting the allocation

mechanismmechanism

• THE COOPERATIVE NASH SOLUTION AS THE MAX OF THE HOUSEHOLD WELFARE FUNCTION

• COOPERATIVE MODELS: PARETO EFFICIENCY IMPLIES THE EXISTENCE OF THE SHARING RULE

)()( ffmm VUVUW =

The Edgeworth’s Box and the cooperative Nash solution

Um

Core

Contracts curve Uf

Um W=(Uf-Vf

(Um-Vm)

A Set of negotiation B e Threat point Uf

Collective models and Sharing RuleCollective models and Sharing Rule

• THE COLLECTIVE MODEL ENCOMPASSES THE COOPERATIVE AND NON COOPERATIVE MODELS WHEN THE SOLUTION S PARETO EFFICIENT

• GIVEN THE EFFICIENCY CONDITION, A TWO STAGE DECISION PROCESS IS ASSUMED:

– FIRST, THE TOTAL HOUSEHOLD INCOME IS ALLOCATED AMONG THE DIFFERENT MEMBERS ACCORDING TO THE SHARING RULE ESTIMATED FROM THE OBSERVABLE BEHAVIOR;

– SECONDLY, EACH PARTNER DECIDE WHAT CONSUME ON THE BASE OF AN INDIVIDUAL BUDGET CONSTRAINT

The Collective Model and the Sharing Rule

The Pareto household program can be rewritten as an individual problem (Chiappori 1992)

fmilxU iii ,),(max =

Yywwhwxp fmiii

N

jijx =£å

=

,,1

ii hTl =

,0,0,0 iiij hlx

where phi(w,y) is the sharing rule describing the intra-household allocation process.

Khat in Djibouti

• An individual .... Good (bad ?) and a social plague

• Women oppose khat consumption, an amphetamine, by the males because khateur household-heads are likely to be more irritable and are less aware of the family needs.

• Djibouti is characterized by widespread child malnutrition. Especially among poor households there are significant differences in the nutritional status of children and women between households with and without khateur members.

• While the shares of education and health in total expenditure are low across all population quintiles, the share of khat is relatively high across all population segments indicating substitution between khat and other goods, especially among the poor.

• Khat share of total budget: 8% poor, 18 % medium, 23 % rich segments of the population

Definitions

• Definition 1: an exclusive good or bad is a private good-bad used by only one member of the household

– An exclusive good or bad is thus a good or bad for which it is possible to unequivocally identify the user.

• Definition 2: an assignable good or bad is a private good or bad whose consumption by each member of the household can be observed.

– Assignability depends on the fact that it is possible to observe who consumes the good and in what proportion.

• In the case of Djibouti it is appropriate to consider khat and cigarettes an exclusive good of the head of the household and of the adult males in general.

Assumptions• Assumption 1: Consumption Set up. Partner's labour supply fixed and absence of child

labour .

• Assumption 2: Children Representative. Children elect the mother (not the father) as the representative of their preferences and wills.

• Assumption 3: Individual Preferences. Wife's preferences are egoistic with respect to the husband and altruistic with respect to the children; husband's preferences are caring.

• Assumption 4: Exclusivity. Mother and children do not consume khat. Khat is an exclusive good consumed by the adult males and education an exclusive good of children.

• Assumption 5: No addiction. Khat consumption does not generate addiction in the strict sense of physical dependence.

• Assumption 6: Non-Consumption. The consumption of khat (or education) is absent in some families. This implies the presence of corner solutions.

Khat Consumption and Labour Supply Khat Consumption and Labour Supply DecisionsDecisions

• NEGATIVE HEALTH CONSEQUENCES OF CHEWING KHAT

• DOES KHAT CONSUMPTION AFFECT THE LABOUR SUPPLY DECSIONS AND THE LABOUR PRODUCTIVITY OF THE KHATEURS MEMBERS?

KHATEURS NON KHATEURS

first 67.37 40.41second 68.15 61.32third 80.4 64.51fourth 78.01 79.41fifth 78.42 84.13percentage of employed household-heads in kahteur and non khateur families

Househol headsQuintiles

Khat consumption and Labour supply Khat consumption and Labour supply decisionsdecisions

• DOES KHAT CONSUMPTION AFFECT THE LABOUR SUPPLY DECSIONS OF THE NON KHATEURS MEMBERS?

KHATEURS NON KHATEURS

first 16.51 6.8second 11.12 6.6third 8.61 10.42fourth 9.82 7.21fifth 18.45 21.92percentage of employed wifes in kahteur and non khateur families

QuintilesWifes

Household-head labour supply estimation: two stage Heckman estimation method

Annual labour income standarderror

education 0.0318 0.0074 4.294 0,000age 0.021 0.003 6.112 0,000informal sector -0.094 0.08 -1.168 0.243public administration 0.016 0.076 0.212 0.832services 0.083 0.11 0.762 0.446trade 0.146 0.093 1.568 0.117region -0.013 0.089 -0.144 0.885nationality -0.001 0.149 -0.01 0.992expenditure share on khat -0.63 0.228 -2.767 0.006public transfers 8.15E-07 2.98E-07 2.737 0.006privat transfers 1.27E-07 8.83E-08 1.441 0.15quintile di appartenenza 0.156 0.027 5.793 0,000children 0-5 years -0.039 0.025 -1.539 0.124constant 12.074 0.235 51.289 0,000 probit equationnumber of students 0.161 0.031 5.219 0,000number of workers males -0.13 0.084 -1.552 0.121number of workers females 0.167 0.082 2.034 0.042if the wifes works -0.577 0.111 -5.211 0,000region -0.132 0.102 -1.286 0.198nationality 0.0325 0.167 1.951 0.051education 0.023 0.01 2.251 0.024age 0.078 0.029 2.721 0.007age square -0.001 0.034 -3.542 0,000children 0-5 years 0.088 0.313 2.595 0.009expenditure share on khat 1.404 3.13E-01 4.482 0,000public transfers -2.66E-07 9.68E-08 -2.751 0.006privat transfers -1.71E-07 2.63E-07 -6.49 0,000if common budget administration 0.468 0.154 3.03 0,002if own house 0.226 0.085 -4.982 0,000quintile -1.865 0.033 6.787 0,000constant 0.661 -2.822 0,005rho -0.508 .sigma 0.986 0.021lambda -0.502 0.011

coefficients t P>| t|Variables

Annual labour income standarderror

education 0.055 0.034 1.612 0.107age 0.039 0.011 3.845 0,000informal sector 0.025 0.195 0.131 0.896public administration -0.09 0.28 -0.341 0.734services -0.178 0.297 -0.599 0.549trade -0.349 0.258 -1.352 0.177region 0.021 0.318 0.076 0.939nationality 0.243 0.368 0.662 0.508expenditure share on khat 0.246 0.597 0.413 0.681public transfers -1.38E-07 4.26E-07 -0.324 0.746privat transfers 1.00E-06 1.99E-07 0.511 0.61quintile di appartenenza 0.221 0.067 3.276 0.001children 0-5 years 0.208 0.075 2.748 0.006constant 10.349 1.116 9.724 0,000 probit equationnumber of students 0.043 0.036 1.167 0.234number of workers males -0.137 0.108 -1.265 0.206number of workers females 0.226 0.081 2.823 0.005if the husband works -0.561 0.109 -5.104 0,000region 0.416 0.16 2.596 0.009nationality 0.254 0.191 1.333 0.182education 0.114 0.015 7.547 0,000age 0.105 0.037 2.844 0.004age square -0.001 0.001 2.341 0.019children 0-5 years -0.059 0.042 -1.378 0.168expenditure share on khat 1.005 3.55E-01 2.827 0.005public transfers -2.28E-07 1.35E-07 -1.691 0.091privat transfers -6.09E-07 2.89E-07 -2.111 0.035if common budget administration 0.041 0.205 0.201 0.841if own house -0.133 0.101 -1.317 0.188quintile 0.007 0.039 0.187 0.851constant -4.025 0.756 -5.321 0,000rho -0.081 0.322sigma 0.938 0.053lambda -0.076 0.304

coefficients t P>| t|Variables

Wife labour supply estimation: two stage Heckman estimation method

Khat consumption and labour supply decision

• KHAT CONSUMTION SIGNIFICANTLY AFFECTS THE LABOUR SUPPLY DECISIONS OF BOTH KHATEURS AND NON KHATEURS MEMBERS

• INCREASING LABOUR FORCE PARTICIPATION OF THE WIFE IS NECESSARY IN ORDER TO PROVIDE THE FINANCIAL MEANS FOR COVERING THE ESSENTIAL NEEDS OF THE FAMILY

Khat Consumption and Intra-Khat Consumption and Intra-household Resource Allocationhousehold Resource Allocation

• DOES KHAT CONSUMPTION AFFECT THE FAMILY WELFARE AND THE BUDGET SHARE DEVOTED TO OTHER GOODS?

• TWO EXCLUSIVE GOODS:

KHAT AS AN ADULT PRIVATE GOOD AND PULIC BAD

EDUCATION AS A CHILDREN GOOD

• INTRA-HOUSEHOLD SHARING RULE BETWEEN ADULT MALES AND CHILDREN

Khat Consumption and Intra-Khat Consumption and Intra-household Resource Allocationhousehold Resource Allocation

• A PARAMETRIC MODEL FOR ESTIMATING THE SHARING RULE• Estimation: generalized Heckman procedure to account for

zero consumption• TWO DEMAND EQUATIONS: EXPENDITURE ON KHAT AND

CIGARETTES AND EXPENDITURE ON EDUCATION

• THE SHARING RULE EQUATION IS A FUNCTION OF EXOGENUS VARIABLES AFFECTING THE DECSIONAL PROCESS BUT NOT INDIVIDUAL PREFERNCES

zz o')( =

))(ln(')ln(')ln( 00 xzyeye xkkkxkkk ==

))(1(ln(')ln(')ln( 00 zxyeye xcccxcc ==

Estimation Estimation

with two exclusive goods the sharing rule is identified up to a constant

• METHOD: JOINT ESTIMATION

given

))5.0(ln())(1(ln( jj

cjxcii

cioxcii

cioc zxyzxyw ååå ==

1= ck ww 100 =

))5.0(ln())(ln( jj

kjxkii

kioxkii

kiok zxyzxyw ååå ==

,

0)()()(

0

0

cjkj

cjkjxjcjxkjxjcjxkjxj

xx

ii

zzz

x

i

=®

===

"=

"=

RESULTS: SHARING RULE ESTIMATESAverage estimated sharing rule: 0.64

Parameter Definition Estimate t-statistic

G21 children financing -0.0210 -1.1551

G22 income pooling 0.1969 5.1528

G23 share of m wage -0.0294 -1.5610

G24 age difference 0.0219 0.6001 G25 wage -0.0213 -2.4898

G26 educ difference 0.0035 3.2194

D10 constant -7.3270 -28.2241 D11 age of head -0.0035 -5.1550 D12 house ownership 0.0038 0.2278 D13 region 0.1268 9.0592 D14 children education -0.0186 -2.1747 D15 income 0.5506 30.3863 D16 pdf 0.8953 18.8847 D17 n. of children<18 -0.0117 -5.7934

D100 constant -1.5388 -13.8623 D111 avg age of children 0.0016 1.0853 D112 house ownership 0.0357 4.1874 D113 region 0.0112 1.7952 D114 wife education -0.0120 -2.1829 D115 income 0.1256 15.9965 D116 pdf -0.0080 -0.3496 D117 age of wife 0.0004 1.4839

A Graph of the Sharing RuleE

sti

ma

tes

(Y

1*m

/Y)

Household full income1800 18800

.335932

.736298

Conclusions I

• The estimates of the sharing rule and labour supply decisions show the negative impact of khat consumption on the allocation of resources within the family and on the welfare of non khateurs family members

• khat is at the same time a private and a public bad

• The Sharing Rule average value, 64%, indicates that khat is an adult good the consumption of which detracts resources that could be allocated amongst other members of the household and reinvested in education.

Conclusions II• Aspects related to income formation and estimates of

the sharing rule are inextricably linked: in Djibouti unemployment is a long-term structural problem. In general, males have greater access to the labour market: they are more educated and find better qualified occupations.

• Because the head of the household is the main wage earner makes households dependent upon how the head chooses to divide his earnings between private consumption and the family budget.

• Income redistribution policies would need to take into account the equality of household resource allocation to eradicate poverty: children are recipients of residual resources and women are negatively affected by an unbalanced resource distribution.