Introduction

Over the last three decades, economic models have been established in order to recognize the potential conflicting interests which may shape the resource sharing and household decision making within the families. Decision making and resource sharing within families have been modeled by the different tools of rational choice theory (Himmelweit, et al. 2013). According to Rational choice theory, it is normal for the individuals in the society to behave according to the preference consistence. Nonetheless, the interests of collective individuals may differ in terms of consistency based on the logical grounds of group preferences. In addition, given the multi-person households normally consists of both men and women with the intra-households functions and relationships which are structured by gender.  The work will demonstrate how institutional household will differ from a different school of household economics.

How institutional household will differ from a different school of household economics

According to Becker “Treatise on the Family,” there is need for economic models in understanding how different people in the society might have different preferences despite living in multi-person households (Azevedo, 2014). In the same way rational choice theory was used in understanding individual decision making, the tool was also used in understanding how decision making might differ in different multi-person households. The different economic models have rarely contributed to the economic modeling of the gender issues because they are believed to influence all the decisions made by all the household members. The decision making approaches may not only be used to analyze the fundamental aspects of gender but also the division of the unpaid and paid labor within the households.

As applied economics continue to evolve in the modern era, different categories of models have been established in order to recognize the effects of more than individual preferences on the household decisions making. The Unitary Models is the first economic model which assumes the family to be making decisions as a single unit while paying close attention to the specific conditions under which the assumptions are held (Sarkar, 2007). The Bargaining model is the second applied economics model that uses both non-cooperative and cooperative strategy theory to model individuals bargaining whose preferences may differ. The Bargaining model is based on the assumptions of the intra-household bargaining processes and how they may influence the outcomes. The collective models are the most recent economic models which generalize the cooperative bargaining strategies which assume the cooperative outcome but fails to make assumptions on the process hence it becomes more open to empirical applications.

In practice, the collective and bargaining household models are no longer interfered with the limitations policy of the unitary models. The unitary model usually assumes that only the family’s total income will influence what is to be bought in that family (Vieira, 2015). Nevertheless, based on the collective and bargaining models it has been revealed that the mothers and fathers income reallocation tends to increase the children’s nutrition, consumption and well-being.  In most of the developing countries, the intra-household resource distribution effects have been fundamental in directing the transfers to the mothers rather than the fathers and the family benefits as a whole (Costa, 2003). Such kind of impacts necessitates the policy makers to recognize the complex model in determining the family members’ contributions and their varying power influence as far as the household resources spending are concerned.

Despite the fact that the rational choice models are not generally meant to determine how the groups of people make their decisions, the unitary models support the assumption that although the household might consist of different members, they tend to make their decisions as an individual decision marker might do (Matt, 2015). Therefore, according to the unitary models, the households normally make their decision in regard to how they spend their income by maximizing a single utility function for the sake of the whole family disregard of the single budget constraint and the family income in general. The unitary models are based on the income pooling notion.  It assumes that it does not matter who contribute the income to the household budget as long as it the income results to the total effect expected by the household. The unitary models therefore connect the relationship between the expenditures and the incomes rather than the processes which connects them.  The income pooling characteristic is an assumption of the unitary models which was criticized by many economists hence necessitating them to come up with more complex households’ models.

In support of the unitary models, Samuelson suggested that in order for the household to pool their income together for a single group’s preference and utility function, the family members must be willing and ready to be caring for each other to an extent that they end up having identical preferences.  Hence, through such mutual family concern, the household members would eventually act according to the unitary model (Hunt, 2013). The fact that identical preference in the household is inconsistent with the rational choice theory, it is always hard in practice for the family to be guided by a single utility function. Moreover, despite the fact that the family members might agree to pool their income and resources for a single budget, it does not imply that they may receive equal treatment according to their prior agreement and level of their resource contribution (Kreitz, 2014). The unitary model believes that apart from the family head, the other members of the family do not have the power to alter the household decision making outcome and in case they behave differently, they would end up hurting themselves rather than changing the situation at hand. As a matter of fact, based on the unitary model earning a huge portion the household’s income does not give the family member an opportunity for him to determine how the income pooled together shall be spent by the other members of the family.

The Unitary model was criticizes based on its severe limitation of applicability in the practical sense and its restrictiveness.  The theory is based on specific assumptions on the individual preferences which do not apply in general sense. Moreover, the unitary model based its arguments and believes on the patriarchal family. The model assumed that the family must be personified, be directed by an altruistic dictator, implicitly and explicitly (Zhu, 2016). As a matter of fact, it is wrong for the model to assume that the head of the household must be altruistic and powerful enough to ensure that all the members of the household interests might be satisfied by his wishes. The income pooling assumption of the unitary has been criticized on the bases that it tends to assume that despite the size of the income contributed by any member of the family in the household budget, the member does not have the power to determine how the amount should be spent (Hamzawy, 2011). Nevertheless, in real life situation, the level on income contribution in the family budget gives the member the power to determine how the fund contributed shall be spent.  For instance, an increased of the income received by a man in the household results into an increase in alcohol and tobacco use in comparison to additional income being received by a woman.

Nonetheless, despite the limitations associated with the unitary model, the model continues to play a fundamental role in the model applied economics. The modern economists continue to use the model in analyzing the micro-economic policies by analyzing the household’s utility function, labor supply decisions and the consumption models in the economy (Alan, 2014). The model is also used in analyzing how an increased in the general household income may necessary benefits all members in the economy. Therefore the model is of great importance in testing the households’ benefits, the standard measure of poverty rates, income inequality, households’ equivalence scales and the households’ standard of living.

The household bargaining models uses the game theory tools to analyze and demonstrate the bargaining process with the households. The game theory usually analyze how people within the society make their decisions using the rational choice theory based on the assumptions that the total outcome of the action depends on each member’s contribution in the family. The model embraces the idea that the family can be a place of both cooperation and conflict (Swedberg, 2011). In the cooperative bargaining models, the household members own their utility function and must negotiate with other members of the family in order for them to achieve a Pareto efficient outcome (Kreitz, 2014).  The model goes ahead to suggest that one member of the household cannot manage to achieve a greater utility without generally reducing the utility of the other members. Just in case a single member tries to gain his or her individual utility he will basically destroy the long term relationship of the members and at the same time reduce his or her short term game playing in the household. The model therefore suggests that in order for an efficient cooperative outcome to be reach all the members must cooperate effectively and efficiently.

According to the bargaining model there are many possible Pareto-efficient outcomes.  The actual outcomes usually depend of the relative bargaining power between the males and females in the household. In this case, the bargaining power of the individuals in the household are determined by their utility at the point of threat and the utility level each person would receive the cooperation between the members was broken down (Kai, 2012).  As a result, there are two cooperative bargaining models which correspond to the two different notions of the cooperation breakdown and the two different kinds of point’s threat. Based on the divorce threat models in the sociological exchange theory, the threat point is estimated to be the household dissolution point. The alternative threat point may also occur in situations whether the couple decided to stay together but goes ahead to cooperate between the break downs (Woo, 2010). The situation in the model is represented by the sociological dependency theory whether the dissolution option is no longer considered. The internal threat point is basically attained when each individual in the household tries to fulfill their individually recognized gender roles to produce the specific household public goods.

The cooperative household bargaining model is the advancement of the unitary model. The theory stand firmly in corresponding to the sociological insights on how the intra-household power may directly or indirectly interfere with the individuals interest applications (Ferreira & Azevedo, 2009). Despite the fact that the bargaining models have not been empirical just like the unitary models, the empirical application might be difficult in the model due to the cooperation breakdown and threat point identity. According to Lundberg, the choice of the threat points demonstrates that the change in policy results into state payment transfers and resource allocation in the gender separate spheres. The results in the model would not divert from what would be predicted by the unitary model but also by the divorce threat model.

The collective models were developed in order to overcome the limitations of the bargaining and unitary models. Just like the unitary and cooperative bargaining models, the collective models also assume that the household decision making outcome must be Pareto-efficient (Catalão-Lopes, 2006). The collective rationality is justified as the minimum expression of the desire to live in a couple. The collective models do not specify any kind of the outcome which might be achieved. Therefore, among the household models which assume the Pareto efficiency, the collective models are believed to be the most general. As a result, the collective models become easier to apply empirically as they bring together the unitary and bargaining models in a special way.

The collective models are believed to be flexible as they accommodate two decision makers and individuals caring for each other. The models include household taxes, spending and production of both public and private goods. In addition, the collective models are concerned with both partners’ labor supply hours and they also investigate the choice of whether to participate in the labor market or not (Coelho, 2011). Just in case the collective rationality assumptions stands, any kind of the household’s decision making process might be represented by maximizing the result of a function that is measured on sum of all the member’s utility functions as subjected to the total budget constraint of the household. The Pareto weights are normally used to bring together the individual utility function as a means of representing the power of each member over the households’ decisions outcomes. Based on the couple’s household utility frontier, the set of Pareto weights which gives the same level of household utility normally lies of the straight line where the curve’s slope is determined by the Pareto weights which is the relative power of the woman and man (Branco, 2008). The collective models allow accepts any factor which might affect the individual preferences but may fail to influence the Pareto weights. Therefore the model usually accepts the family budget constraint that may shift the possible household outcomes such as the household non-labor incomes, price of the purchased goods and the individual wage rates.

The Pareto weights might also depend on the distribution factors which might affect the variables affecting the household budget constraints and their preferences. Whenever the distribution factors do change, the Pareto-efficient outcomes remain unchanged (Bragge, 2006). Nevertheless, a change in the distribution factor would definitely change the relative power of the household members hence altering the relative weight of the utility function of the individual which definitely change the household choices of the Pareto-efficient. The sharing rule under the collective model is used to demonstrate how the household income might be shared between the members of the household (Garcia, 2012). Later each member of the household might independently decide to use their share to maximize their utility. In order for the sharing rule to result into Pareto efficient decisions the income being sub-divided must be exogenous.

Conclusion

As a matter of fact, the work has reviewed the household decision making models which use the rational choice theory to demonstrate the economic thinking mainstream. The work has focused on the household decision making models since they are directly associated with the fundamental aspects associated with the households’ resources distribution. The rationale, limitations and assumptions of the Unitary, bargaining and collective models have been used to how an institutional household will differ from a different school of household economics. Unlike the Unitary and bargaining models, the collective models have fundamentally contributed towards understanding of the intra-household distributional aspects and may be used for further study of the household decision making approaches in the future.