Family Decision-Making

Economic models of consumer demand and labor supply begin with an individual economic agent choosing actions that maximize his or her utility function subject to a budget constraint. How can we reconcile this individualistic theory of the consumer with the reality that people tend to live, eat, work, and play in families? Economists have dealt with a possible multiplicity of decision makers in the family in two ways. The first approach, in ascendancy from the 1950s until the 1980s, was the unitary approach-treating the family as though it were a single decision-making agent, with a single pooled budget constraint and a single utility function that includes the consumption and leisure time of every family member. The second approach, pioneered by Manser-Brown and McElroy-Horney in the early 1980s, was to model family demands as the solution to a cooperative bargaining game. Other non-unitary approaches have been developed, including the "collective" model of Chiappori and various non-cooperative models.