Essay on Microeconomics: ECOH 611

Household Economic Behaviour: From unitary to collective models
Microeconomics: ECOH 611
Nickey Mphahlele
STUDENT NUMBER:25416553
Individual Essay 1
H.Com (Economics)
in the
SCHOOL OF ECONOMIC SCIENCES
in the
FACULTY OF ECONOMIC SCIENCES & IT
at the
NORTH-WEST UNIVERSITY (VAAL TRIANGLE CAMPUS)
Lectures: Mr. Jacque de Jongh
Month year: 2019/04/19

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INTRODUCTION
Economic theories from a micro and macro perspective have enormous impact on
policies which significantly determine economic outcomes of countries (Palley,
2008). Schneebaum & Mader (2013), define households simply as a group of
people who live together which microeconomics considers as basic unit of
decision, have played a significant role in structuringeconomies through their
omnipresence as crucial units of both production and consumption (Chiappori,
1997). Pioneered by Becker and Mincer, household economics encapsulates the
economic analysis of decisions made by households (Picard, De Palma & Inoa,
2014). Unitary household economic models and the collective models, which
include bargaining, non-cooperative as well as cooperative models all attempt to
theoretically examine and explain household behaviour in household economics.
Consumer theory of the traditional framework suggest a single utility function of
viewing household which is maximised under budget constraints (Vermeulen,
2002). The traditional view of household behaviour is however challenged by
several authors, who developed ‘collective’ approaches of viewing household
behaviour (McElroy & Horney, 1990; Manser & Brown 1980, McElroy, 1990).
Various approaches of collective household behaviour models share a
fundamental option, namely that households are made up of a group of individuals,
which are characterised by isolated preferences and share collective decision
processes (Chiappori & Bourguignon, 1992). The following discussion pertains to
providing an overview of different household economic models, their assumptions
and views of household behaviour. The specific focus is on how each model
explains intra-household resource distribution, labour supply and allocation of time
between the members of household. Secondly, considering the extensive criticism
by feminist economics paradigm of Becker’s (1965) traditional (unitary) model of
family behaviour and it’s understanding of demand, criticisms and implication of
household traditional model views are also discussed. Furthermore, an
explanation from a feminist economist’s perspective on household behaviour is
provided. Finally, considering the evolving views of household, from unitary and

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collective models, assessment on major implications for policy makers in light of
the shifts are provided, with a specific focus on addressing gender inequality in
economies around the world.
HOUSEHOLD ECONOMICS BEHAVIOURAL MODELS
Figure 1: Household decision making models.
Source: Bolt & Bird, 2003.
Figure 1 provides a clear overview of the discussion below beginning with unitary
models the collective models, which include co-operative and non-co-operative
models. Becker (1981) and Samuelson (1956) framework formalised household
behaviour and uses household welfare function as an allegory for social
indifference curves. In traditional models, households are assumed to maximise a
joint welfare function. The joint welfare function is a single utility function which
based on collective preferences, which are subject to joint budget constraints.
According to (Aldeman, Chiappori, Haddad, Haddinot & Kanbur, 1995), the
function represents the view of household decisions, although models allow for
Decision-making models
Collective Unitary
Co-operative Non-co-operative
Pareto-efficient
Bargaining
power
approach
Benev olent
dictator approach
Supertrader
household
model
Co-operative
conf lict
approach
Maternal altruist
approach

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prices to differ within the household. The single utility approach is however,
rejected by Donni & Molina (2018) and Vermeulen (2002) on a theoretical level,
arguing that the utility theory is purposive of studying individual choices and not
group choices. Formation and dissolution of the household is dependent on
individuals in household being married or divorced (Manser & Brown, 1980). As
the marriage is formed, income of family is assumed to be pooled together in
contribution to overall household (Beninger & Laisney, 2002). Schneebaum &
Mader’s (2013) definition of household, counter argues income pooling
assumption, as people do not need to be family to live together and income is not
shared even when people are family. Working hours of labour supply are based
on, income pooling assumption however the model fails to determine the source
of income (Bloemen, 2010). Dictatorship in the household is a given, as
responsibility of monitoring and sanctioning of those who fall foul of its rules and
to issue information flow and control are determined by one person (Becker, 1991).
Unitary models view of household behaviour is broad in that, it focuses on both
market and non-market activities of households, such as fertility, education of
children and allocation of time. Unitary models however fail to incorporate resource
distribution within household (Alderman et al, 1995). Due to the overall weakness
of the unitary model, alternative non-unitary representation models which focus on
intra-household decision making were adopted post 1980, after universal rejection
of the unitary approach (Donni & Molina 2018).
Collective models also known as bargaining models became popular post 1980 as
they explicitly address the issue of how individual preferences lead to collective
choices and bargaining amongst household members (Alderman et al, 1995). A
bargaining process within the household is assumed to take place as different
members have different preferences (Vermeulen, 2002). The model assumes
Pareto-optimality of allocation, which determines consumption choices and this
assumption also defines collective rationality (Beninger & Laisney, 2002).
Furthermore, the model also assumes that, preferences of individuals are of the

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caring type (Bloemen, 2010). The distribution of resources process can be
explained using a two budget process; the first state is that non-labour earnings
are divided amongst household members and second stage is that there are
conditional divisions of income that are determined by individuals that supply
labour (Fortin & Lacroix, 1997). Using the second stage budget process
assumption, Chiappori (1988) shoes that the sharing rule of non-labour earnings
amongst household members. This essentially suggest that, income is quantifiable
and the non-quantifiable aspect of resource distribution can be determined using
a non-parametric statistical approach which has no assumption of resource
distribution. Considering that income is as a result of individuals supplying labour,
Doss (2013) opposed labour supply literature of collective model in that, due to
their higher bargaining power of labour suppliers, participation and non-
participation is dependent on individuals. The criticism is essential in that, it factors
two perspective of co-operative and non-cooperative decision making in
households.
Bargaining models views intra household resource distribution as an outcome of
bargaining process (Schneebaum & Mader, 2013). Household members, are
individualistically viewed as separate agents that have their own utility function and
preferences. Labour suppliers that have access to economic resources (labour and
non-labour) are a critical aspect of member’s bargaining power they determine the
allocation of time and resources (McElroy, 1990). Bargaining perspective allow for
either male of female dominance over the distribution of resources, established by
habits or social norms versus the results of outcomes which are determined by
bargaining and contestation (Manser & Brown, 1980). This assumption allows for
criticism from feminist views of bargaining models as policies that do not consider
male dominance can perpetuate the norm in societies if policy makers do not
explicitly deal with this. The model assumes Pareto efficiency as it is a subset of
collective model discussed above (Apps & Rees, 1997). Bargaining of the model
takes place over, consumption, production, labour, ownership decision making,

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women’s wellbeing and children’s outcome (Doss, 2013). As mentioned above, an
outside option is considered a threat point which can either be that there is a utility
of either remaining single or getting divorced (Manser & Brown, 1980). Intra-
household spousal conflict of interest and preferences are assumed to be resolved
using the Nash bargaining solution to resolve their differences (Lundberg & Pollak,
1993). The benefits that arise from using bargaining power models is that there is
room left to analyse the importance of gender in making household decisions and
gives guidance for implication of public policies (Lundberg & Pollak, 2008).
However, there is a complexity to developing policies around the model as it
requires extensive research on demographics, gender dynamics, social roles and
social problems of households.
Cooperative models use Nash-bargaining model of marriage which treat intra
household behaviour of marriage as a cooperative game in which the members of
the household have their own utility function. Individuals are assumed to have free
choice whether to be involved in the household or not, with the key factor being
the utility decisions (Chiappori & Bourguignon, 1991). There are two key decision
making models; firstly, being the bargaining power process in that as people push
for their preferences, if agreement is not reached (determined by the cost of
compromising) individuals might break up from the household or ensue division of
household asset. Secondly being that, once a household is formed, decisions in
the household become bias in who would lose or gain from the separation of the
household (Alderman, 1995).
Non-cooperation may arise without explicit agreements such as divorce in the
household in labour supply, resource distribution and allocation of time. Assurance
of Pareto -optimality can arise in both cooperative and non-cooperative bargaining
models as couple can agree to not agree within the marriage and still stay together
(Manser & Brown, 1980). Non-cooperative models have also been developed to
capture the possibility of different preferences and utility functions (Schneebaum
& Mader, 2013). They are less common in literature, however,Schneebaum &

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Mader (2013) suggest that Becker’s Supertrader household model (Becker, 1981)
can be useful in understanding non-cooperative models. Becker’s Supertrader
model relies on the assumption that individuals are not allowed to enter into
enforceable contracts which are binding, with each other and that the individuals
are not limited by social norms which other models are limited by. Time allocation,
labour supply and resource distribution are factors which are used to bargain with
each other, using implicit prices to determine resource distribution. Furthermore,
individual’s actions are conditional on other’s actions and thus the non-cooperative
model does not assume useful elements of time allocation, labour and resource
distribution, they are determined by interactions.
Bergmann (1995) a feminist economist, raises a concern of the household
economic models are fatally simplistic and to an extend misleading, as they have
not helped to solve, issues surrounding children. According to Bergmann (1995),
Gary Becker’s unitary model was developed to analyse economic growth and
markets. The empirical testing method is what Bergmann is concerned with as
Becker’s (1973) analysis is tested using females as subordinates of males and do
not consider the closely related bonds of equal partner parents, single parent
families, same-sex partners and other bonds which confines the focus of study.
Woolley (1996), in compared Bergmann’s criticism of collective models concludes
that she does not endorse a total rejection as there is a way that feminist economist
can apply them in some way or another. However, Woolley’s (1996) argument
does not deal with the useful arguments of collective approach and thus gives
credence Bergmann’s (1995) criticism as she deals with useful elements (Katz,
1997). In 1987, 25.2% of Rwanda households were female headed (Agarwal,
1997) which begs the question that, persistency side-lining women in policies and
not giving them preference as they are historically disadvantaged would result in
25.2% effect of Rwanda women being excluded economically and in social
assistance.

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CONCLUSION
Considering that economic theories are simply theory and do not reflect reality, the
research content and the extent to which household models try to provide
understanding is commendable. The limitations of different models, will be subject
to debate and will shape economic policy decisions. The discussion above begins
with a unitary approach, which is an abandoned model in household economic
however as much as concerning criticisms arise, credence needs to be given for
opening a pathway for other models. Collective household decision making
models, which include bargaining, cooperative and non-cooperating overlap with
regards to the bargaining aspects. The two subsect group of non-cooperation and
cooperation household decision making models arise from collective models in
that, they both deal with the different outcomes of a collective household.The
above assessment which critically assesses important aspects of labour supply,
time allocation and resource distribution in household economics, provides an
understanding on what the model assumes and relevantcriticisms. Feminist’s
arguments are important and raise serious and genuine concerns over household
decision making literature which influences policy direction all over the world. An
important aspect to note is that, in critically assessing different models, feminist
economist criticisms are also included. The shifting ground of household
behavioural literature should, in changing policy direction radicalise the feminist
approach within policies. The prevailing disregard is hazardous as public policies
influences the well-being of millions of people, and most importantly, hinders
positive social growth in developing countries. The aim is to have household
policies, without too much room for error.

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