Intra-household bargaining refers to negotiations that occur between members of a household in order to arrive at decisions regarding the household unit, like whether to spend or save or whether to study or work. Bargaining is traditionally defined in economic terms as the negotiating conditions of a purchase or contract and is sometimes used in place of direct monetary exchange. In its simplest definition, ‘bargaining’ is a socio-economic phenomenon involving two parties, who can cooperate towards the creation of a commonly desirable surplus, over whose distribution the parties are in conflict. Bargaining process within a family is one of the important aspects of family economics. Bargaining also plays a role in the functioning and decision making of households, where agreements and decisions do not often have direct monetary values and affect various members of the household.
Theoretical perspectives
Common preference models These models consider the household as a single decision-making unit with common preferences, which contrasts with bargaining models that acknowledge individual member preferences.Here, the dominant earner or the head of the household is perceived to act selflessly, prioritizing decisions that cater to the well-being of the entire household. The primary decision-maker's happiness is inherently tied to the welfare of the other members. Critics note that this model may overlook intra-household power disparities and potential inequalities.
Altruistic dictator The term "Altruistic Dictator" in the context of Gary Becker's work refers to a theoretical model in household economics where one person, often referred to as a benevolent dictator, controls the household's resources and has altruistic preferences, meaning they care about other family members. This person's utility function includes the preferences of other family members as a normal good. Each household member then maximizes their own preferences subject to their budget constraint set by the benevolent dictator, resulting in the household behaving as one individual. Becker's model of the altruistic dictator has been used in various economic experiments, such as the dictator game. In this game, one individual (the dictator) decides how to distribute a sum of money between themselves and another person (the recipient). This game is used to study the motivations behind people's decisions to redistribute income to others. Becker's model has been influential in shaping research in the economics of the family, despite some criticism. His approach to the family leads to a conclusion that the institutions depicted are benign, and that government intervention would be useless at best and probably harmful . In the altruist model of intra-household bargaining, the primary earner or household head is presumed to act altruistically, making decisions that they believe benefit the entire household. This model assumes that the happiness or satisfaction of the altruistic member is intrinsically linked to the well-being of all other members. As a result, resources get distributed based on this member's perception of what benefits the household collectively, which may not always align with individual preferences. However, critics argue that the model might neglect potential intra-household power imbalances and inequalities.
Bargaining models of marriage and divorce Bargaining models of divorce focus on the negotiations between spouses during the process of divorce. These models aim to understand how individual preferences, power dynamics, and external factors influence the outcomes of divorce settlements, such as the division of assets, alimony, and child custody arrangements. One example of a bargaining model of divorce is the Nash-bargaining model, which interprets the intra-household allocation of resources as an outcome of bargaining processes among household members, taking into account their individual preferences and outside options. This model can provide valuable insights into the complex dynamics of intra-household resource allocation and decision-making during divorce, capturing the potential influence of individual preferences and bargaining power on divorce outcomes. Another example is the separate spheres bargaining model, which differs from divorce threat bargaining models by considering the distribution of resources within marriage and how it affects the bargaining process during divorce. This model acknowledges that spouses may have different spheres of influence and control over resources within the marriage, which can impact the negotiation process and outcomes during divorce. Critics of these models argue that they may not fully capture the complexities of divorce negotiations, as they often rely on simplified assumptions about individual preferences and power dynamics. However, bargaining models of divorce can still provide valuable insights into the factors that influence divorce outcomes and help inform policies and interventions aimed at promoting fair and equitable divorce settlements.
The Nash-Bargaining Model The Nash-Bargaining Model, as described by McElroy [1990], is a cooperative bargaining model applied to household decision-making. This model is based on the idea that household members negotiate and reach agreements on the allocation of resources, taking into account their individual preferences and outside options
Thomas [1990] proposed a test to distinguish between altruism models and the Nash-bargaining model, finding evidence that bargaining may influence allocation within households. In particular, he observed that in households where mothers contribute a larger share of non-labor income, children seem to be better nourished . This suggests that the Nash-bargaining model can provide valuable insights into the complex dynamics of intra-household resource allocation and decision-making, capturing the potential influence of individual preferences and bargaining power on household outcomes. The Nash-bargaining model is considered more realistic than the altruism models as it acknowledges the potential for conflicting interests and preferences among household members. It also allows for the possibility of changes in the distribution of resources within the household based on negotiations between members, rather than assuming a single decision-maker acting in the best interest of the entire household.
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