Family Decision Making

Banerjee and Duflo on the challenges and evidence concerning how decisions are made in families:

[…] Economists often ignore the inconvenient fact that the family is not the same as just one person. We treat the family as one “unit,” assuming that the family makes decisions as if it were just one individual. […] But as anybody who has been part of a family knows, this isn’t quite how families work.

[…] The realization that the simplest model was missing important aspects of how the family works led to a reassessment in the 1980s and 1990s: Family decisionmaking came to be seen as the result of a bargaining process among family members (or at least between the two parents). Both parents negotiate over what to buy, where to go on vacation, who should work how many hours, and how many children to have, but do so in a way that serves both of their interests as well as possible. In other words, even if they disagree on how the money should be spent, if one of them can be made happier without hurting the other one’s well-being, they would make sure it is done. This view of the family is usually referred to as the “efficient household” model.

In other words, the family should always try to maximize the total amount of resources for the family, only afterward discussing how to distribute those resources. Does a field experiment support this view?

Christopher Udry tested this prediction in rural Burkina Faso, where each household member (the husband and the wife, or wives) works on a separate plot [of land]. In an efficient household, all inputs (family labor, fertilizer, and so forth) should be allocated to the various plots in a way that maximizes total family earnings. The data squarely rejected this view: Instead, plots being farmed by women were allocated systematically less fertilizer, less male labor, and less child labor than plots farmed by men. As a result, these households systematically produced less than they could have. Using a little bit of fertilizer on a plot increases its productivity a great deal, but increasing the amount beyond that initial level does not do very much – it is more effective to use a little bit of fertilizer on all the plots than a lot of fertilizer on just one plot. But most of the fertilizer in the Burkina Faso households was used on the husband’s plot: By reallocating some of the fertilizer plus a bit of labor to the wives’ plots, the family could increase its production by 6 percent without spending an extra penny. Families were literally throwing money away because they could not agree on the best way to use the resources they had


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