Are you a Rotten Kid?
Household decision-making
Ruth Tarrant
“The family is a remarkable institution.
And a complex one. Indeed, so complex
that much of economic theory proceeds
as if no such thing exists”
Sen, A. (1984) Resources,Values and Developments, Cambridge: MA, Harvard University Press
Why live in a multi-person household?


Economies of scale in z-goods
Gains from comparative advantage


Implicit loans


A husband may continue to work and fund his wife through a
course, for example
Savings


Different household members are better at different activities
One partner may work and build up savings that can be used
by the other
Risk-pooling

It’s unlikely that both partners will lose a job simultaneously
UK population statistics (1)
UK population statistics (2)
UK population statistics (3)
The household as a black box
Yes!
Paul Samuelson
Gary Becker
“Blood is thicker than
water” – cohesion and
mutual altruism
Maximise the utility of
the altruistic
household head
Samuelson, P (1956) ‘Social Indifference Curves’ The Quarterly Journal of Economics, 70(1) pp.1-22
Becker, G.S. (1974) ‘A theory of social interactions’, Journal of Political Economy 82(6) pp.1063-1093
Who is the household head?
Your family

Who has the greatest decision-making power?

Who earns the most?

Are the two linked?

What other factors affect the balance of decision-making
power in your household?
Who is the household head?

Becker: main ‘breadwinner’


Whoever earns more has control over their own money and
that of their spouse
Not so!

2005-06 Indian National Family Health Survey




80% households: male breadwinner
10% households : female breadwinner
10% households: male and female equal breadwinners
Decision-making:


2.2% women controlled resources
24% women had sole control over their earnings
“parents are concerned not merely with
their children’s utilities, but with their
children’s consumption patterns (e.g.
parents may be willing to pay for college
tuition or a down payment on a house,
but not a Mercedes or a trip around the
world)”
Non-unitary decision-making models
Models that allow for individual members of a household with
different preferences influencing household decisions
Non-cooperative
Cooperative
Separate Spheres
Bargaining models
Separate Spheres model - assumptions

Couple behaving according to ‘traditional’ gender roles




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Man contributes money from paid work
Woman contributes time to the household
Both get utility from z-goods
They have to decide how much money/time to contribute
to producing z-goods, either L (low) or H (high)
One-shot game
Separate Spheres model - outcome
Cooperative models
Cooperative models
Collective model: maximise a household
utility function, which is a combination of all
household members’ utility functions
Cooperative model
What
factors do
you think
affect the
position
of the
threat
point, T?
Utility possibility frontier
showing self-regarding
preferences
T shows the maximum
utility each can achieve
on their own
Shaded area shows
outcomes that are
preferred to T by at
least 1 partner
Caring preferences (1)
Caring preferences (2)
Which model gets your vote?

Gary Becker (Rotten Kid)


Paul Samuelson (Black Box)


Everyone in the household agrees how to allocate resources
Separate Spheres


One altruistic household head allocates resources
Specialise according to comparative advantage but do as little
as possible
Bargaining model (co-operative model)

Resource allocation depends on relative bargaining power of
household members