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close this bookStrengthening the Family - Implications for International Development (UNU, 1991, 268 pages)
close this folderEconomic perspectives on the family
View the documentIntroduction
View the documentDefinitions of the family and household
View the documentThe new home economics
View the documentConcepts in the analysis of household/family behaviour
View the documentMethods for predicting the impact of development inputs on families
View the documentFindings relevant to the family
View the documentInsights regarding family social wellness
View the documentReferences

Introduction

The behaviour of families was neglected by economists until the 1950s (Becker 1981). Now, their growing awareness of family behaviour is hastening the incorporation of family life into the mainstream of economics. In turning their attention to the household or family, economists and economic demographers are analysing the underlying ways in which the rules of the market govern the consumption, production, and welfare of family members and the structure of the family itself. Family economics is now a respectable and growing field (Becker 1965).

Definitions of the family and household

Economists focus on the household - a residential unit - whose members pool their resources (at least to some degree) to provide for the welfare of all. Households usually consist of family members linked by blood or marriage, occasionally augmented by unrelated members. Households are defined on the basis of residence, while families are defined primarily by kinship.

The household is not an undifferentiated unit, but "an economy in microcosm, a system of exchanges, entitlements, and responsibilities allocated among members in a group whose boundaries are far from clear" (Rogers 1990). According to Guyer (1980), it is "a particularly dense center in a network of exchange relationships." Within the group residing together, there may be further distinctions between those who do and do not carry out domestic functions together, such as cooking, eating, child care, and farm labour (Webb 1989; Heywood 1990). Therefore different analyses of the same household may identify different subgroups of individuals.

The new home economics

The branch of economics concerned with intra-household or family dynamics is known as the "new household economics" (NHE). Prior to NHE, the household was treated as a "black box" (Pollak 1985) no attempt was made to model the dynamics of intra-household decision-making. The tendency to treat the household as a black box tells us nothing about how its decision-making process is structured by the complex interests and different capacities of family members. The NHE brings economic theory into the microcosm of the household, building on the observation by Becker (1965), "A household is truly a 'small factory': it combines capital goods, raw materials and labour to clean, feed, procreate and otherwise produce useful commodities." NHE redefines household satisfaction in terms of intangible products or utilities. Households are viewed as "consuming" the things that satisfy them, such as the health of their members, bright and successful children, or relaxation (Berman, Kendall, and Bhattacharyya 1994). These ultimate consumption goods are considered to be "commodities. "

Sen (1990), refines the terms that he believes should be applied to the measures of individual well-being in these analyses. He suggests that the intangible outcomes should be considered as capabilities of persons, or positive freedoms that the different members of the family can enjoy. He points out that such a capabilities perspective is particularly useful for evaluating social conditions and programmes in relation to children, in terms of freedom from undernourishment and nutrition-related diseases and of developmental capabilities. Such research should address both the immediate benefit aspects and the investment aspects of personal consumption - e.g. in looking after children, short-term considerations must be balanced against long-term concerns for the well-being of the next generation and the support of the parents in old age.

Concepts in the analysis of household/family behaviour

As explained by Kennedy and Rogers (1992), there are three common approaches to analysing intra-household behaviour, which contribute different useful perspectives to understanding family dynamics. These concepts are equally applicable to non-residential kinship or family structures, to the extent that these groups also share resources and responsibilities.

NHE research on the family began by questioning and rejecting the first of these approaches, which is the neoclassical "unified household preference function," or black box (Becker 1981; Folbre 1986). Theorists using this model tend to make an assumption of altruism in the family, in which all household resources are pooled and then reallocated according to some common rule that benefits all family members (Becker 1981). Neoclassical analysis uses relatively simple regression equations that calculate the "outcome" only as a function of inputs from outside the household, disregarding decision-making inside the household. These analyses assume that the household maximizes its unified household preferences (Rosenzweig and Schultz 1983), given its budget and production constraints. This assumption of altruism-unified preference within the household is in contrast to expectations of naked self-interest in the market (Berk 1980; Folbre 1989). Thus, the altruistic household was viewed as "the haven in the heartless world" of market competition (Lasch 1977).

Research within the past 15 years, however, has demonstrated the existence of separate, different, and often conflicting preference functions of individual members (Jones 1983). Given the different preferences, household behaviour can be described using a bargaining model (Manser and Brown 1980; McElroy and Homey 1981), according to which individual members pursue their own interests, given their relative bargaining positions inside the household. Simplistic assumptions that families are in harmonious agreement or consensus regarding the use of household resources (Samuelson 1956), or that each household has one altruistic member who works things out for the benefit of all (Becker 1974; 1981), have been shown to be inaccurate.

Some bargaining models apply mathematical game theory to marriage and household decision-making (Manser and Brown 1980; McElroy and Homey 1981). They include models of cooperative conflict (Sen 1990), which address situations in which there are many cooperative outcomes that would be more beneficial to all the parties than non-cooperation, but where the different family members have conflicting interests in the choice among these cooperative arrangements.

Bargaining is supplemented by an "implicit contracts" model (Folbre 1989) that sees the family as governed by culturally determined expectations about the entitlements and obligations of individuals in different positions within a household unit. This model explains why people who lack bargaining power retain access to some household resources. Individuals pursuing their own selfinterest also are bound by ties of affection as well as implicit contracts. These traditional norms can be viewed as the cultural "fall-back" position for men and women who are unwilling to invest time and energy in bargaining over alternative allocation (Pollak 1985), or as the upper and lower bounds on acceptable behaviour within which bargaining can be applied (Kennedy and Rogers 1992). These norms are often held in place by powerful legal and institutional factors that determine the disposition of household assets, such as family laws regarding property rights and social entitlements (Folbre 1992). Changes in these institutional factors may have greater effects on intra-household bargaining than changes in individual market earnings or assets.

Individual earning power increases bargaining power. An individual's bargaining power is determined in part by his or her "threat point" - the point at which the person believes he or she would be better off outside the household unit than in it. The greater a person's income-earning opportunities outside the household, the higher the threat point and thus the greater the bargaining power within the household. Another type of threat-point analysis defines the threat point not as divorce, but as a non-cooperative or asymmetric equilibrium within marriage, which may be reflected in different roles for men and women and different use of resources. Such analyses explain why child allowance schemes that pay the mother may have different effects from those that pay the father (Lundberg and Pollak 1992). To the extent that interventions alter the first type of threat point, they may create shifts in the family structure, while alterations in the second may influence intra-household tasks and benefits.

Pollak (1985) applies a less-developed "transaction cost" approach to intra-household transactions. The premise of transaction cost analysis is that organizations (including families and households) seek institutional modes for organizing transactions that minimize transaction costs. Pollak applies theories regarding the boundaries, structure, and internal organization of commercial firms to families, treating the family as a governance structure, with supplier-customer contract relationships. He views family governance in terms of incentives, monitoring, altruism, and loyalty.

Methods for predicting the impact of development inputs on families

The family's relationship to the use of development assistance is modelled in different ways for different purposes. Until now, the analysis of intra-household factors has been constrained by the expense of collecting detailed and highly accurate information.

Household unified preference function for aggregate policy

The unified preference function, according to which household members (e.g. parents) are assumed to allocate resources as if they have common preferences, remains useful for determining the effects of price changes on demand for basic commodities (i.e. foods or nutrients). This information is essential to permit governments to use such means as tariffs, support prices, or export prices to modify the price structure in ways that protect poor families. For macro or regional policy purposes, a price subsidy to increase food consumption of a population or a segment of the population can be implemented with the assumption that households will re-allocate this food to their members. This is the least expensive approach because household-level income and consumption data are sufficient.

Health reduced-form relation function

The household unified preference function, however, offers little information regarding to what extent changes in food prices affect individual family members (Rosenzweig 1990); for this purpose, individual food intake or other commodity consumption is needed. Collecting individual food intake data is difficult and costly (Behrman 1990). In place of food consumption data, Rosenzweig (1990) and Behrman (1990) suggest using individual biological outcomes (health or nutritional status) to analyse, for example, how changes in exogenous factors such as the prices of food or medical services result in changes in the health of individuals. This is called the "health reduced-form relation." If policy makers need to know the person-specific demand equations to analyse the consequences of government policy regarding the welfare of the individual, this framework can be used.

Household health production function: Household health/outcome technology

While the reduced-form relation permits policy makers to estimate the effects of aggregate policy on individuals, it does not reveal how programme interventions affect household allocations of inputs to family members. Decisions regarding which services are most productive with respect to health, or how food supplementation programmes can improve child nutrition, may require information obtained by using a framework that investigates household allocation among members. This framework, according to Behrman (1990), is an attempt to "peek into the black box" of the family.

This is a household production function whose outcomes are determined by various inputs. Unlike the "reduced-form" relation, in which outcomes are determined by exogenous factors (factors that cannot be controlled by the family), some inputs in this framework are under the control of household members. This framework is called the "technological/biological relationship between inputs and outcome indicators" (Rosenzweig and Schultz 1983; Behrman 1990; Rosenzweig 1990).

Estimations using this framework are very sensitive to factors that are known to family members but unknown to the researchers (Rosenzweig and Schultz 1983). Household allocation among family members is influenced by across-household and individual-specific endowments. Researchers should be aware of the existence of these factors to reach an accurate estimate: for example, a household with better sanitary conditions will inherently use less health services; if this factor is ignored, the estimated effect of the health services would be underestimated. In another example, if a child's perceived intelligence (endowment) influences the allocation of educational resources, unbiased anticipated resource effects on the child's schooling will be difficult to obtain.

A two-stage estimation procedure is commonly used in the attempt to overcome this problem. The first stage describes the household's "demand" for the inputs to welfare outcomes such as child health. The second stage estimates the production functions using predicted allocation based on the demand estimates. This procedure is very useful for better anticipating how the allocation of resources within the household will respond to outside changes induced by government programmes, and how foods and other inputs will directly affect health outcomes (Rosenzweig 1990). As an example of this two-stage procedure, Berman, Kendall, and Bhattacharyya (1994) cite the work of Popkin (1980), who applied this type of model to nutrition in the Philippines to demonstrate the effects of employment opportunities, for mothers outside the home, on child care and nutrition.

Such knowledge is important not only for a better understanding of the ways in which families allocate their resources but also for the design of family life education and home economics programmes to help families to allocate their resources better. It requires, however, large quantities of carefully collected data at both the family and the individual level. These data are expensive to gather, thereby hindering widespread use of the methods, especially in large surveys.

Findings relevant to the family

Much of the economic research bearing on the family is gender role research, arising from the fact that the main bargainers for family control are of opposite gender. Feminist issues also enter as, for example, in the concern of Folbre (1986) that the ways in which economic theory deals with altruism are sentimentalized by men who fail to see their discrimination against women or who perceive that women have a "taste" for altruism or voluntary sacrifice.

Major research findings applicable to the family are as follows:

1. Equity and adequacy of intra-household allocation of all types of resources increase as these resources become more adequate.

2. The household's sharing rules shift with any shift in the resources given to one member, whether child support to a mother, donated food to a child, or agricultural technology to a male household head (McElroy 1992). Unless counterbalanced by cultural or legal sanctions, programmes that enable one gender, either male or female, to earn comparatively more than before will raise their threat point both for leaving the family union and for demanding a larger share of services or other household resources from their partners. Therefore, reduced access to technology for women, who already may be in subordinate overburdened positions, is a major issue for families in development.

3. From the cultural side, loosening social controls on the family that permit men to discontinue their support to wives and children increases the threat point for these men leaving the family by enabling them to keep more income for themselves if they leave than if they stay. According to the laws of the market, these forces will lead inevitably to the progressive detachment of men from women and children. Absolute insufficiency of wages for men and inability to live up to cultural ideals for family support contribute to this detachment.

Where marital disruption rates are high, the risk of being a major or sole economic support of a household motivates women to enter the labour force and to take an active role in support of the family, even while coresident with a spouse (Bruce and Lloyd 1992).

4. Actual earning power or economic profitability to the family of women in the current generation influences the allocation of food, health, and educational resources to female children (the next generation).

5. Income in the hands of women has effects on household expenditure that differ from those of income in the hands of men (Thomas 1990, 1992; Hoddinot and Haddad 1991; Engle 1993). Income in the hands of women is associated with a larger increase in the share of the household budget devoted to human capital. The inputs and outcomes measuring human capital in various studies have included household services, health and education, leisure and recreation, as well as more quantitative and biological measurements of child height, weight for height, immunizations, survival, and nutrient intake. In theory at least, this finding implies that increases in employment opportunities for women will have a greater positive effect on child welfare (Folbre 1992) than similar increases for men.

6. The work of poor women for pay both inside and outside the home has been associated with favourable child nutrition outcomes, if child care and pay rates are adequate (Engle 1993). This is more true for older than younger children. Favourable nutritional status of children with alternate child care while their mothers work may, however, not be matched by equally favourable cognitive development. Aina et al. (1992) found in Nigeria that two-year-olds who went with their mothers to the worksite were more malnourished but had higher cognitive test scores than those left behind with a caregiver.

7. Poor women household heads with low incomes will make great personal sacrifices to achieve favourable child outcomes (Bruce and Lloyd 1992). These studies, however, have been done in societies where such women are highly dependent on their children for future support.

8. Intra-household dynamics differ regionally, with the predominant cultures of sub-Saharan Africa showing wider divergence from those of Europe, Asia, and Latin America than these regional cultures from each other (Bruce and Lloyd 1992; Desai 1992; Kabeer 1992).

Insights regarding family social wellness

Probably most important to social health of the family is the finding that poverty decreases the altruistic allocation of resources, or the ability and willingness of the family to satisfy the needs and preferences of its individual members.

According to Desai (1992), the important task for policy formation is "to identify the conditions influencing the degree of altruism or conflict within the family" (key components of social wellness). Very little research has investigated the explicit conditions under which households maximize the welfare of all of their members (Kabeer 1992). Desai (1992) calls for the examination of two sets of conditions, one rooted in the individual situation, and the second in institutional structures. As an example, Desai illustrates with data from Latin America that consensual rather than formal marriages are structures that significantly decrease the degree of family altruism as reflected by preschool nutritional status. She assumes that this negative outcome occurs because these less-committed households are less likely to pool their income.

A transaction cost approach to families

Also bearing on family social health, Pollak (1985) introduced an approach to viewing the family as a governance structure that applies the concept of "transaction cost" usually used by firms or institutions. The premise of transaction cost analysis is that organizations (including families and households) seek institutional modes for organizing transactions that minimize transaction costs. This approach expands the NHE recognition of the importance of internal structure and organization. Unlike the NHE approach, it treats the family as a governance structure rather than a preference ordering. This approach links the two debated spheres - the altruistic model and the bargaining model. This is done by recognizing the advantages of altruism to family governance in terms of incentives, loyalty, and monitoring; and the disadvantages to family governance of conflict, different family endowments, and nepotism.

Pollak's ideas on transaction costs provide a promising perspective, opening the door to new, broader economic analyses of families, not just in terms of economic production and consumption, but also in terms of their structures and the organizational characteristics that govern their activities. For family policy purposes this approach holds promise; however, it needs rigorous econometric investigations and has not been adequately modelled. The application of this approach still awaits further development of this model. In order to strengthen the management functions of the family as a responsible agent, the approach by Pollak (1985) to family governance should be further explored.

Acknowledgement

This chapter has benefited from discussions with Beatrice Rogers, Ph.D., at Tufts University School of Nutrition, Medford, Mass., USA.

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