Family Economics - Decision-making in The Family

Decision-making in The Family

Economists have different models of decision making regarding the allocation of labor within households. Some assume that there is a single decision maker in the household. If the head of the household is altruistic, he will get some satisfaction when he makes a decision that takes into account the benefit of other household members. Gary Becker argues that altruism of the decision maker of the household also benefits the decision maker of the household, because as a result of altruism he will make his decisions by taking into consideration the benefits of other members. By doing this he will keep them within the household, and increase their willingness to contribute more to the family. Also according to Becker’s Rotten Kid Theorem, even if one of the household members would want to harm another household member by contributing less to the family, then the altruistic decision maker in the family might prevent that particular member from harming the other member. In such a case, an altruistic decision maker might arrange distribution within the household in such a way that the utility the rotten kid gets from the increase of family income will be more than the utility he gets from the harm the decrease of family income causes to the family member he envies. Models of decision-making like Becker’s altruism model don’t take into account possible conflicts that decisions made by one of the household's members could create for other members.

Bargaining models are models that focus on how decision-making within the household may possibly proceed when such conflicts are taken into account.These models assume that household decisions are made by a bargaining process. They apply to bargaining between husband and wife, or between parent and child. Conflicts arises in case the outcome of a decision gives more utility to one party while the alternative decision is more advantage to the other party. According to Amartya Sen in some cases the bargaining agents might not have full perceptions of either their economic contributions to the household or their interests. Based on this possibility he adds two more factors that, according to him, will affect the bargaining outcomes: "the perception of contribution" and "the perception of self-interest." If a party is more aware of his or her interests, he or she will get better outcomes from the bargaining process. Also, if a person has a better sense of the value of his or her contribution to the family his or her power in the bargaining process will increase. According to Sen, when women do market work their bargaining power will improve, in part due to better perceptions of contribution and self interest. As a result, decisions made will benefit women more. For example, Sen has applied this bargaining framework to explain the shortfall of women in the population in some parts of the world ("the missing women" problem): in view of their more limited participation in paid work women have weaker bargaining power in the household, more limited access to resources (food, care, health access) within the household relative to men, and are therefore less likely to survive than in other parts of the world where women participate more in market work.

Others still model household members as independent individual decision-makers who possibly made decisions before the household was formed.