The decline in average family size and its implications for the average benefits of within-household sharing

Economic policies rely on demographic projections. Yet in making these projections, researchers often ignore the aspect of household formation - despite sustained trends in many industrialized countries towards smaller household units with fewer members. Over the long term, this trend is likely to reduce the benefits of sharing goods/services within households (household economies of scale) at the micro level, thereby increasing household-sector demand at the macro level. We propose a framework to (a) quantify the level of household economies of scale for different household types; and (b) assess how the decline in average household size impacts aggregate household-sector demand. We apply the framework to energy consumption in Japan. The application indicates that household economies of scale in energy use are substantial and that the 5% decline in average household size in Japan between 2005 and 2010 led to an economy-wide loss in household economies of scale amounting to almost 4%.