1. Drug Consumption and Intra-household Distribution of Resources: The Case of Khat in Djibouti Seminar Federico Perali Department of Economics University of Verona, Italy Assistance in Institutional Strengthening and Agricultural Policies Damascus, September 15 2002

2. 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...

3. 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.

4. 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

5. 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

6. Sociological models For a traditional family with the husband as the breadwinner ALTRUISTIC HUSBAND PATERNALISTIC AND BENEVOLENT HUSBAND EGOISTIC HUSBAND

7. Game theory as an instrument for interpreting the allocation mechanism Family decisions as a bargaining problem COOPERATIVE MODELS

8. Game theory as an instrument for interpreting the allocation mechanism THE COOPERATIVE NASH SOLUTION AS THE MAX OF THE HOUSEHOLD WELFARE FUNCTION COOPERATIVE MODELS: PARETO EFFICIENCY IMPLIES THE EXISTENCE OF THE SHARING RULE

9. The Edgeworth’s Box and the cooperative Nash solution

10. Collective 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

11. The Collective Model and the Sharing Rule The Pareto household program can be rewritten as an individual problem (Chiappori 1992) where phi(w,y) is the sharing rule describing the intra-household allocation process.

12. 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

13. 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.

14. 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.

15. Khat Consumption and Labour Supply Decisions NEGATIVE HEALTH CONSEQUENCES OF CHEWING KHAT DOES KHAT CONSUMPTION AFFECT THE LABOUR SUPPLY DECSIONS AND THE LABOUR PRODUCTIVITY OF THE KHATEURS MEMBERS?

16. Khat consumption and Labour supply decisions DOES KHAT CONSUMPTION AFFECT THE LABOUR SUPPLY DECSIONS OF THE NON KHATEURS MEMBERS?

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

18. Wife labour supply estimation: two stage Heckman estimation method

19. 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

20. Khat Consumption and Intra-household 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

21. Khat Consumption and Intra-household 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

22. Estimation with two exclusive goods the sharing rule is identified up to a constant METHOD: JOINT ESTIMATION given

23. RESULTS: SHARING RULE ESTIMATES Average estimated sharing rule: 0.64

24. A Graph of the Sharing Rule

25. 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.

26. 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.