The Family Under the Microscope: An Experiment Testing Economic Models of Household Choice

Abstract

We devise and execute three experiments to test key features of models of household decision-making. Using established couples (married and unmarried) we test income pooling, unanimity and Pareto efficiency. Subjects make choices individually and jointly and are asked to make predictions about their partner's choices. Unanimity is rejected. Income pooling is not rejected in joint choice but has less explanatory power in individual choice. In direct tests both sexes do not pool income completely, but in econometric tests across all tasks, women place an equal weight on payoffs but men discount their partner's payoffs by between 15 and 20%. We find that transparency has little impact on deviations from income pooling or indeed on behaviour generally. Many joint choices deviate from the Pareto principle in a systematic manner suggesting that choices made as a couple are more risk averse than individual decisions.

Keywords: experiment, household, unitary, income pooling, Pareto, family

JEL Classification: C92, D13, D80