B-U-ch3

# Bargaining power vis vis others in the household

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Unformatted text preview: Higher opportunity cost of time – Greater preference for education, and greater efficiency in passing on ing education to children education – Greater bargaining power vis-à-vis others in the household Created by: Dr Sumon Bhaumik http://www.sumonbhaumik.net/ Impact of social norms [1] Social norms Social – Household i’s utility from children would depend on the number of Household utility children of other households in the peer group, or the society in children which they live which » There are externalities associated with having children » Fertility decisions of household involve “strategic complementarities” Fertility Characterisation of strategic complementarity complementarity – – – – Number of households = M Vector of children of households ≡ X = (X1, X2, …., XM) Vector Household utility function = Ui(X) Household Externality ⇒ ∂2U(.)/∂Xi∂Xj > 0, for i ≠ j 0, Externality Created by: Dr Sumon Bhaumik http://www.sumonbhaumik.net/ Impact of social norms [2] Optimisation problem for household i – Max Ui(X) Max – Utility of a household is subject to diminishing marginal utility with respect to the number of its own children. with Definition Definition – X-i ≡ (X1, …., Xi-1, Xi+1, …., XM) Implication Implication – For each X-i, the household i will have an unique value for the the will optimal number of children optimal » X*(X-i) is household i’s reaction function is » ∂X*(.)/∂Xj > 0 Created by: Dr Sumon Bhaumik http://www.sumonbhaumik.net/ Impact of social norms [3] Assumption Assumption X* 450 line C X*(Z) – All households have identical All preferences preferences Symmetric Nash equilibrium Symmetric – Each household will have the Each same number of children same – Xi* = Xj* = Z B Multiple equilibria equilibria A Z – The actual outcome will The depend on expectations which, in turn, are driven by cultural norms norms Created by: Dr Sumon Bhaumik http://www.sumonbhaumik.net/ Other impact of social environment [1] Economy Economy – Small families – Labour is...
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## This note was uploaded on 10/05/2013 for the course ECON 455 taught by Professor Sumonbhaumik during the Fall '11 term at Simon Fraser.

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