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Decisionmaking by Households

  • 2011
  • Working Paper
Hotz, Joseph V.; Peet, Evan & Thomas, Duncan

Publisher/Institution: Duke University

Abstract: Understanding how individuals within households combine different needs, aspirations and preferences in the allocation of resources remains a key unresolved issue in models of family behavior in the population sciences. Using specially- designed population-level longitudinal survey data from Indonesia, we test models of co-operative decision-making by households. We validate our model by establishing that the behavior of single-adult households is consistent with predictions from economic models of individual choice and may be treated as a “unitary” decision- maker. In households with more than one adult, not only are the predictions of the unitary model rejected, but we also reject the predictions of a model that assumes household resource allocations are Pareto efficient. To interpret this evidence, we explore decision-making in the face of adversity. In the face of shocks, single-adult households tend to reach out to others whereas multiple-adult households tend to consolidate decision-making authority. Decision-making by households depends not only on the characteristics of members and their bargaining power but also the environment in which those decisions are made.


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