Household economics keynote sep 4 2015 edited sept 10

HOUSEHOLD ECONOMICS: A
FIELD IN MOTION
Keynote address by Shoshana Grossbard
SABE/IAREP Meetings
Sibiu, Romania, September 4 2015
Shoshana Grossbard Sabe @Sibiu keynote address 1

• Introduction to economics courses typically start with the circular flow
model of ECONOMIC ACTIVITY that captures some of the main
economic transactions in the economy.

The circular flow of economic activity. Source: McConnell, Brue and Flynn, 2015

CIRCULAR FLOW OF THE ECONOMY
• The bare-bones version of that model has households on one side and
firms on the other side; goods and services flow from the firms to the
households while the latter pay the firms for what they consume.
• Labor and capital flows from the households to the firms who pay the
households for their inputs into the production process.
• The chart is often extended to include the role of government.

Households in the Circular Flow Chart
• The chart focuses on ECONOMIC ACTIVITY typically defined as commercial
activity. It involves monetary transactions (the blue arrows). The chart
reflects the focus of economics as a discipline.
• The chart emphasizes the roles of households as
• CONSUMERS
• SUPPLYERS OF LABOR / WORKERS
• SUPPLYERS OF CAPITAL/ SAVERS
• The circular flow chart is symmetric: it gives businesses and households
equal importance. However, even in this restricted sense of economics,
most economics courses offer a more comprehensive treatment of
business economics (focused on decisions by firms) than of household
economics (focused on decisions by households).

In academia the study of matters of interest to
firms tends to be more integrated than that of
interest to households.
• Many universities now have business schools employing numerous
economists and other scholars, providing opportunities for them to
interact and learn from each other.
• But there are no “household schools” hiring household economists.
Integration with other scholars studying households into one ‘school’
is thus less available to household specialists than it is to business
specialists
• Again, this indicates that the focus of academic economics lies on the
study of economic activity in the narrow sense of commercial activity
with monetary dimensions (there are schools of public policy too, but
their main focus is on the role of government).

In the 1960s
• Some economists tried to expand the economic analysis of household
decisions beyond this focus on commercial transactions.
• This led to an integration process of various applications of household
economics

The New Home Economics and Becker’s Economics
of the Family.
• The New Home Economics (NHE) is a school of thought that
developed when its founders—Gary Becker and Jacob Mincer—both
taught at Columbia in the 1960s

A biographical note
• Both Becker and Mincer were of Eastern European origin. Mincer was
born and raised in Lublin, Poland; Becker was born in Pennsylvania,
US, but his parents were born in Eastern Europe
(http://www.achievement.org/autodoc/printmember/bec0bio-1)

The New Home Economics at Columbia
• By 1969 Becker moved to Chicago, the main reason why the NHE is often
considered a part of the Chicago-Columbia school of economics.
• NHE analyzed household decisions outside the circular flow of economic activity,
including
• fertility (Becker 1960, Mincer 1963),
• women’s labor supply (Mincer 1962, 1963; Becker 1965), and
• consumption and commuting time (Mincer 1963, Becker 1965).
Underlying the integration of these analyses was a model of the household as a small
non-profit firm allocating its time and other resources. This firm engages in
‘household production’.
Their student Michael Grossman (1972) became one of the founders of health
economics.
Their student Barry Chiswick became a founder of the economics of immigration. He
is the only student who co-authored with both Becker and Mincer. Too bad he could
not be here today and talk about this recent work, including work on the economics
of language

References mentioned on previous slide
• Becker, Gary S. (1965). “A Theory of the Allocation of Time.” Economic
Journal 75(299): 493-517; Grossman, Michael. (1972). The demand for
health: a theoretical and empirical investigation. New York: Columbia
University Press; Mincer, Jacob (1962), "Labor Force Participation of
Married Women: a Study of Labor Supply." In Aspects of Labor Economics
edited by H. Gregg Lewis. Princeton, N.J.: Princeton University Press;
Mincer, Jacob (1963), "Market Prices, Opportunity Costs, and Income
Effects." In Measurement in Economics edited by C. Christ. Stanford, CA:
Stanford University Press.
• Also see Grossbard, Shoshana. (2006). "The New Home Economics at
Columbia and Chicago" chapter in Jacob Mincer, A Pioneer of Modern Labor
Economics, Edited by S. Grossbard. New York: Springer, 2006.

The New Home Economics at Chicago
• After moving to Chicago Becker published rational decision-making models of marriage
(Becker 1973, 1974a), social interactions (Becker 1974b), and intergenerational transfers
(Becker 1981).
• In addition to rational choice analysis, in some of these articles Becker also used market
analysis and the concept of equilibrium (see Becker 1976).
• Much of his NHE-related work was incorporated into Becker’s (1981) Treatise on the Family.
Refs: Becker, Gary S. (1973). “A Theory of Marriage: Part I.” Journal of Political Economy 81(4): 813-846.
_____. (1974a), "A Theory of Marriage: Part II." Journal of Political Economy 82:511-26.
_____. (1974b), "A Theory of Social Interactions." Journal of Political Economy 70:1-13.
_____. (1976). The Economic Approach to Human Behavior. Chicago: University of Chicago Press.
_____. (1981), A Treatise on the Family. Cambridge: Harvard University Press (2d edition: 1991).

When awarding him the Nobel prize in 1992, the Royal Swedish Academy of Sciences
highlighted Becker’s “models of behavior of the family (or household), including
distribution of work and allocation of time in the family.”
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1992/press.html

Household Economics = Becker’s economics
of the family?
• Household economics is often associated with what Becker included in
economics of the family, and with his focus on economic models of
household formation and of intra-household and inter-generational
allocation and distribution.
• Many economists expect studies on household economics to contain a
decision-making model including at least some of the assumptions that
Becker made.
• Is this perhaps why, as editor of the Review of Economics of the Household,
I have received a number of referee reports mentioning that a paper is
probably not a good fit for this journal even though I sent them the paper
thinking that its topic fits us very well. Did they expect a theoretical model
with some of the assumptions that Becker used?

Towards a More Integrated Household Economics
(HE)
• I define HE as the “economic analysis” of decisions made by
households, regardless of whether it contains formal theory.
• HE includes
• the study of household formation, which includes
• fertility (adding newborn children),
• the nest-leaving of older children forming their own household,
• marriage, divorce and
• other forms of couple formation and dissolution.
• analyses of intra-household allocation, which covers studies of time use and
intra-household distribution of consumption.

“economic analysis” of households? What
does that include?
• The answer is just as vague and evolving as in the case of more traditional
applications of economics. It certainly does not mean exclusion of insights and
methods from other disciplines analyzing human behavior, such as psychology,
sociology, or anthropology.
I have called for interdisciplinary
cooperation since 1978, when I
published “Towards a Marriage between
Economics and Anthropology …” that
called the attention of Benny Gilad while
he started to organize SABE in the early
1980s! (ref: Amyra Grossbard. "Towards a Marriage Between
Economics and Anthropology and A General Theory of Marriage,"
Papers and Proceedings, American Economic Review, 68(2):33-37,
1978. )

Economics has allocated the study of selected
household decisions to separate sub-fields
Household Decisions
• Labor supply
• Consumption
• savings decisions
• health and reproduction
• Etc..
Subfield
• Labor Economics
• consumer economics,
marketing, and ag. Economics
• macro-economics
• Health economics

What household decisions are typically studied
and taught in economics departments?
• Economics departments don’t cover HE very well. Let us take the
example of my own department

Our course offerings tend to give more
weight to the analysis of
commercial firms’ decisions and
the monetary economy
than to the study of household decisions
that often are of a non-commercial nature.
This is typical.

How much HE does my department cover?
• Part of labor economics deals with labor supply decisions. This is
briefly covered in introductory courses, intermediate courses, and not
even a big part of labor economics courses.
• Decisions such as whether to form a couple, to marry, or have a child
are rarely covered in basic courses of introductory or intermediate
economics. When I teach I offer a unique course on the economics of
the family. Very few economics departments do.
• The economics bias towards commercial firms is also noticeable at
the level of the sub-fields of economics that are offered by
doctoral programs training the economics professors of the
future.

Some sub-fields of economics are not covered
at all by many economics departments
• This is especially true for relatively new applications of HE such as

Economics of Marriage

the economics of religion

the economics of ‘risky behaviors’ (e.g.
smoking and other addictions, and
unprotected sex),

economics of happiness,
or studies of time uses other than labor
supply.

Why such a broad definition of household
economics?
All applied economics has become more data-oriented in recent years, in
part the result of the availability of new data and improved computation
capacity and statistical methods.
• Experimental economics, defined as economic analysis based on controlled
experiments, has become more prevalent (see Vernon Smith 1998)
• and more natural experiments are being identified and analyzed.
Furthermore, the broad definition of HE proposed here is a response to
some of the criticisms of the assumptions behind the rational models that
have traditionally dominated economics (see Shoshana Grossbard-Shechtman
and Christopher Clague, On the Expansion of Economics. Armonk, N.J.: M.E.
Sharpe. 2001; Frantz, Roger (2016), editor. Handbook of Behavioral Economics.
London: Routledge, forthcoming).

More integration of the HE sub-fields is
needed. Why?
a/ Many of the same variables are studied by different sub-fields of HE. Some
may be explanatory variables in one sub-field and outcome variables in
another. Research in another sub-field could possibly lead to a better
understanding of the mechanisms behind observed correlations.
b/ Some new variables that were introduced as explanatory factors in one
sub-field may also throw light in another subfield, or it may become the
focus of further studies.
c/ Some of the same empirical methods, such as natural experiment analysis
and Instrumental Variable analysis, can be applied to various sub-fields.
d/ Some of the same household decision-making models may apply to
different sub-fields

Reasons why integration of HE sub-fields can
be useful

Same variables in different sub-fields.
Example 1 from health economics and economics of childcare.
• Health economics includes analyses of elder care by grown adults, usually the
elderly’s children.
• How much adult children take care of their elderly parents could be a function of
how much grandparents are taking care of grandchildren, or have done so in the
past. They may be paying their elderly parents back for what they did.
• Causality could also run in the other direction: the amount of time that
grandparents devote to taking care of grandkids could be a function of how much
they expect their adult children to take care of them when they need assistance
at a later stage.
• Problem: Scholars who study elder care are typically not following the economic
literature dealing with childcare, and those who study childcare often don’t study
the economics of aging.

Example 2 of two fields studying same
variables
• A variable frequently analyzed in labor economics—hours of work—and obesity, an
outcome belonging to the domain of health economics.
• Causality in the connection between these variables could run both ways:
• people working longer hours may lose or gain weight as a result of their type of
work but
• it is also possible that weight, especially obesity, affects the ability to work. Also,
Cawley (2004) has shown that overweight women earn less in the labor force
and this may discourage them from working.
• To the extent that obesity also affects the probability that an individual obtains
transfers from their spouse and the potential size of such transfers, there may be
income effects varying with weight that could explain some of the variation in
hours of work (Grossbard 2015, Chapter 5).
Refs: Cawley, John (2004). “The impact of obesity on wages”. Journal of Human
Resources, 39(2), 451-474; Shoshana Grossbard The Marriage Motive: A Price Theory of
Marriage. How Marriage Markets Affect Employment, Consumption and Savings. Springer, 2015.

Example of “New” variable: Religion
• An economist specializing in the study of savings (usually considered part of macro-
economics) discovered that religious differences partially explain savings (see Horioka 2014).
• Another economist studying educational outcomes found that Muslim immigrants to the
U.S.A. have less education compared to immigrants not affiliated with any religion
(Mukhopadhyay REHo 2011).
• Religion has also be found to be related to substance use initiation in adolescence (Kim-Spoon
et al. 2015) and divorce rates (Lehrer and Chiswick 1993)
• Does this imply that specialists in other areas of HE, let us say labor economists, need to pay
more attention to religion in their own studies? Data from countries including religion in
standard government surveys of the labor force may then become more valuable relative to
data from countries where such data collection is illegal, as is the case in the U.S.A.
• Refs: Horioka, Charles Y. (2014). “Are Americans and Indians more altruistic than the Japanese and Chinese?
Evidence from an international survey of bequest plans.” Review of Economics of the Household 12(3): 411-
438; Mukhopadhyay, Sankar. (2011). “Religion, Religiosity and Educational Attainment of Immigrants to the
USA”. Review of Economics of the Household 9(4): 539-553; Kim‐Spoon, J., McCullough, M. E., Bickel, W. K.,
Farley, J. P., & Longo, G. S. (2015). Longitudinal associations among religiousness, delay discounting, and
substance use initiation in early adolescence. Journal of Research on Adolescence, 25(1), 36-43.; Lehrer,
Evelyn L and Carmel U. Chiswick (1993). “Religion as a Determinant of Marital Stability.” Demography
30(3):385-404.

Two more example of new variables
• Another example comes from a recent paper in the field of economics of
happiness: Hills, Proto, and Sgroi (“Historical Analysis of National
Subjective Wellbeing Using Millions of Digitized Books.” IZA DP No. 9195,
July 2015) used digitized books, including books read more than a century
ago, to obtain long time series of happiness in different countries. This
variable could be used in research in different sub-fields of HE.
• A third example is that the full cost of a decision also needs to take account
of the cognitive processing cost. This opens the door to a new literature in
neuro-economics that has a wide range of potential applications to HE (see
Alonso, R., I. Brocas and J. Carillo (2014). "Resource Allocation in the Brain "
Rev Econ Stud 81(2): 501-534; Kool, W. and M. Botvinick (2014). "A
Labor/Leisure Tradeoff in Cognitive Control " J Exp Psych 143(1): 131-141.)

Empirical methods
• All sub-fields of HE have to deal with the fact that most household
decisions are interrelated.
• What I consume is related to what I save, to what I earn, to what I give, to
how many kids I have and to how old they are.
• How much I earn depends on how much I studied and on how many kids I
have and whether I married or not.
• How healthy I am depends on how happy I am, how much I work, number of
children, education, my spouse’s education….
• The list of interrelated household outcomes is endless. As a result, it
is difficult to find exogeneous variables when estimating HE models.

Two methods that address this problem:
1/ natural experiment analysis
Reading about the use of a natural experiment in one sub-field may inspire
researchers of another household outcome to use the same experiment in their
research.
For example, Wang and Wang (REHo) found that the 9/11 tragedy on the
likelihood that immigrants married natives or other immigrants. It appears that
after 9/11 deteriorated labor market conditions and tighter immigration policies
led to more immigrant/native marriages. This natural experiment has already
been used in labor market studies (e.g. by Orrenius and Zavodny 2009), but it
has more potential applications.
Refs: Wang, Chunbei and Le Wang. (2012) “The effects of 9/11 on intermarriage between natives and
immigrants to the U.S.” Review of Economics of the Household 10(2): 171-192; Orrenius, Pia M. and Madeline
Zavodny. (2009). “The effects of tougher enforcement on the job prospects of recent Latin American
immigrants.” Journal of Policy Analysis and Management 28:239-257.

2/ Instrumental Variable analysis
An instrument that worked when studying one outcome of household
decisions may also be useful in another application of HE that is
investigated within another sub-discipline of economics.
For example, after sibling’s weight was introduced as an instrument in
order to remove some of the endogeneity of own weight it became
widely used in a variety of studies

Theoretical models.
• Why theoretical models are still valuable.
• First, at a minimum, they help provide causal mechanisms explaining findings.
• Second, they help identify relevant variables that were not previously
connected to the outcome being studied or they help identify the structure
that ties the outcome with other variables.
Example: The NHE had a considerable impact on HE in part thanks to
the value added of the concept of household production introduced by
Mincer (1963) and Becker (1965). (references on previous slide)

How to accomplish the integration of various
subfields within HE?
• Traditionally economics departments served as facilitators of
integration between various subdisciplines in economics
• Another way to facilitate integration

REHo, the Review of Economics of the
Household
• I founded this journal because of the importance of such integration. First
issue came out in 2003
• I believe that this is why the following great economists supported the
project by agreeing to serve on the editorial board (without being asked to
write referee reports…):
• The late Gary Becker, Nobel prize
• The late Clive Granger, Nobel prize
• The late Jacob Mincer, IZA prize
• The late Jack Hirshleifer
• Edward Lazear, IZA prize
• Jim Heckman, Nobel prize (but he dropped out after a while, before we
ever published an issue…)

More on theoretical models that
can be useful in HE

The concept of “production function in the
household” continues to be relevant today
• The full cost of obtaining what is consumed includes both the monetary
cost and the time cost
• Example 1: a meal needs to be produced before it is consumed (there is a time cost
even if it is consumed away from home, but even more in the case of food produced
at home Household production functions continue to be useful, as shown for
example in studies of consumption of food away from home, food at home and
nutrition quality (e.g. Davis REHo 2014)
• Example 2: other health-promoting behaviors (Anderson and Grossman REHo 2009).
Grossman is a co-editor of REHo.
• But it is not necessarily a “household production function”
• A/ the agent making decisions regarding production could be a household or
• B/ an individual member of the household (see Phelps 1972, Grossbard 2011).
• References: next slide.

References to previous slide
Davis, George C. (2014). Food at home production and consumption:
Implications for nutrition quality and policy. Review of Economics of the
Household, 12(3), 565-588; Anderson, Richard and Michael Grossman
(2009). “Health and the Household” Review of Economics of the
Household 7(3):219-226; Phelps, Charlotte D. (1972). “Is the Household
Obsolete?” The American Economic Review Papers and Proceedings,
62(1/2):167-174; Grossbard, Shoshana. “Independent individual
decision-makers in household models and the New Home Economics”
in Household Economic Behaviors edited by J. Alberto Molina. New
York: Springer, 2011;

How useful is Price theory to HE analysis?
• First look: much of what is being produced by households is of a non-
monetary nature, which limits the role that monetary prices can play
in guiding inter-household and intra-household allocation of
resources and distribution of goods.
• A key tool of traditional price theory, market analysis, relies on the
existence of monetary prices and has therefore not been widely
integrated into conceptual models of household decision-making.
• Second look: there is more room for applying exchange analysis and
market theories of price determination to HE than is commonly
thought

Exchanges and Prices within
Households

Inter-Household and Intra-Household Exchanges
• Family members often care for each other, especially when young
children and older adults are concerned. Providing such care is costly,
at a minimum in terms of time cost (also called opportunity cost).
Consequently, caring can be viewed as work. It is part of what I call
Work-In-Household, or WiHo (Grossbard 2015); Nancy Folbre (2012)
calls it ‘care work’.
• Work is often exchanged for money or access to goods inside
households
• Inside Nuclear families defined by filiation or couple formation.
• Inside Extended families that go beyond nuclear families
Refs: Grossbard, Shoshana (2015). The Marriage Motive. New York:
Springer; Folbre, Nancy (2012). For love and Money. Care Provisions in
the United States. New York: Russell Sage Foundation.

Exchanges inside Extended families
• At least three sub-fields of household economics study transactions
within extended families:
• specialists on savings study bequests and other downstream transfers from
older parents to adult offspring,
• health economists do research on care-giving to the elderly and this includes
care-giving by adult offspring, and
• specialists of childcare also do research on child care services provided by
grandparents.
• All researchers engaged in these sub-fields are interested in the
degree of altruism (love) and self-interest motivating outcomes. If
members of two adjacent generations are selfish, an ‘exchange
motive’ can be identified.

Four types of intergenerational exchanges
• a/ money-for-money exchanges.
• b/ caring-for-caring exchanges:
• c/ downstream money flow exchanged for care-giving.
• d/ upstream money flow exchanged for care-giving.

More on these 4 types:
• a/ money-for-money exchanges. For example, Kotlikoff and Spivak (1981)
hypothesize that there could be an “implicit intra-family annuity contract”
wherein parents receive an annuity from their children until their death in
exchange for giving their children an ex post premium in the form of a bequest.
Ref: Kotlikoff, Laurence J. and Avia Spivak. "The Family as an Incomplete Annuties
Market." Journal of Political Economy, Vol. 89, No. 2, (April 1981), pp . 372-391.
• b/ caring-for-caring exchanges. parents take care of children when they are
young and in return children take care of parents. One problem with such
exchanges is that children are not capable of being partners in exchange: their
decision-making skills take a long time to develop. It is more conceivable that
adult offspring exchange grandparents’ childcare services for taking care of
elderly parents when they will be needing such care.

More on exchanges of time for money in
extended families
• Two directions:
• downstream money flow exchanged for care-giving. Consider older parents
who make transfers to their adult offspring in exchange for the offspring
caring for them
• upstream money flow exchanged for care-giving. Adult offspring make
transfers to their parents in exchange for the grandparents taking care of their
young grandchildren.
• Such exchanges don’t exclude altruism. A caregiver may be motivated
by altruism (love) but if costs are very high he may still be expecting a
payment that is sufficiently high to induce him to provide the care.

Downstream transfers and upstream care-
giving.
• There is an extensive literature on downstream monetary transfers taking
the form of inter-vivos transfers or bequests. For example, Charles Horioka
(2014) analyzed survey data on the strength of bequest motives, stated
bequest motives, and bequest division collected in China, India, Japan, and
the United States
• He found the bequest plans of the Japanese and Chinese to be more
consistent with selfish preferences than those of Americans and Indians:
e.g. the latter were less likely to state that “they will leave an inheritance to
their children, no matter what”.
• in the U.S.A. and India respondents were more likely to prefer equal
division of their bequests among all children, which indicates less evidence
of exchanges of money for care-giving. These differences across the 4
countries could be related to differences in religion. They are not easily
explained by differences in income.

Downstream transfers (cont.)
• Much research that has attempted to identify self-interested downstream
transfers has focused on identifying money-for-caring exchanges.
• Bernheim et al. (1985) pointed out to differences between one-child and multiple-
child families in view of the more credible threats of disinheritance that parents
can make when they have more than one child. They found that in the case of
multi-child families parental bequeathable wealth was positively related to
offspring’s frequency of phone calls and visits, which is consistent with the
existence of an exchange motive.
• Degree of altruism can be inferred from the observed relationship between
recipients’ income and amount transferred. The more positive that correlation,
the more there appears to be an exchange motive: larger payments may be
needed to induce caring by adult offspring with a higher value of time. Evidence
has led Cox (1987) to conclude that bequest donors are not so altruistic.
• Bequest and savings literature typically does not use data on time adult offspring
spend caring for their parents.
• Refs: Bernheim, H. Douglas, Andrei Shleifer, and Larry Sommers. (1985). “The strategic
bequest motive.” Journal of Political Economy 93(6): 1045-1076; Cox, Donald. (1987).
“Motives for private income transfers.” Journal of Political Economy 95(3):508-546.

Downstream transfers (cont)
• Using recent U.S. panel data for parental households above age 70, including
information on the amount of time their adult children spent caring for them,
Monika Lopez-Anuarbe found that parents provide more inter-vivos gifts to
children who had provided them with caring time in the past. (Ref: Lopez-
Anuarbe, Monika (2013). “Intergenerational Transfers in Long Term Care.” Review
of Economics of the Household 11(2): 235-258. )
• This can be interpreted as parents paying for offspring’s past care-giving.
• Lopez-Anuarbe also analyzed panel data for adult children, including information
on their time use and on gifts from their elderly parents, and found that
• Where offspring’s caregiving is less costly to supply the offspring spend more time taking care
of parents, which is consistent with the existence of an upward-sloping supply of care-giving.
• Number of hours of offspring’s care-giving was higher
where states provided more support for caregivers and
when travel distance was shorter (of course, distance from parents is another one of these
endogeneous variables…).

Upstream transfers and downstream care-
giving
• This is another form of exchange within extended families. As in the
case of downstream monetary transfers, the offspring and the
parents may also be motivated by altruism.
• For example, grandparents may take care of their grandchildren in
order to help their adult offspring. As is common in the developing
world, the offspring may earn more than their parents and may “pay”
them for the childcare services they provide.

Upstream transfers (cont.)
• Example: Cheolsung Park’s (2014) study of the determinants of upstream transfers in
South Korea, a country that has experienced rapid economic growth in recent decades
(Ref: “Why do children transfer to their parents? Evidence from South Korea” by
Cheolsung Park Rev Econ Household (2014) 12:461–485)
• Is there exchange of parental child care for upstream transfers from offspring to parent?
If so, the transfer amount is likely to be positively correlated with parental income (the
opportunity cost of parental services is higher if parents’ income is higher).
• He finds that
• children don’t transfer less to the parents whose income is higher than theirs, which is not
consistent with the altruistic motive, but suggests that upstream transfers are to some degree
payment for grandparents’ child care.
• the amount of transfer has a positive relationship with the number of children under age 7 in the
offspring household if both the offspring and the offspring’s spouse are employed in the labor
force (indicating more need for child care by grandparents).
• Grandfathers without a spouse receive smaller transfers than older married couples or
grandmothers without a spouse, a function of grandmothers providing more childcare.

Generalizing results on exchanges in
extended families
• Juxtaposing research on three outcomes thus suggests that there are
exchanges of care-giving for money within extended families:
• Some positive association between what one generation pays and the
amount of work supplied by the other generation (altruism would suggest a
negative association)
• Weak evidence that the individual supplies of intergenerational caregiving
are upward-sloping: the higher the net pay-off the more care is provided.

Can we generalize this insight to intra-
household exchanges?
• Do husbands and wives have exchanges of caring work for money,
similar to such exchanges between adult parents and their grown
children?

Exchanges inside Nuclear families
• I will focus on
• Exchanges between partners/spouses. Part of Economics of Marriage (one
could also study parent/child exchanges when children are young and part of
nuclear family)
• More specifically I will focus on
• Exchanges of caring work for money
• Caveat: Let is keep in mind that as in the case of extended families
• There is much altruism/love that motivates individual decisions
• There are other types of exchanges, especially exchanges of caring time
(reciprocity)

Economic analysis of exchanges of caring time
for money within couples
Compared to Economic analyses of such exchanges in
extended families, economics analyses of exchanges
within couples have
• The disadvantage of little data; who collects data on how much money is being
transferred between husband and wife? No major data sets used in economics, but
household finance studies
• The advantage that men and women chose their mates, rather than being affiliated with
a parent or a child. Therefore, it is possible to apply market analysis

Marriage markets conditions can influence
consumption and allocation of time
• The idea that “Marriage markets  consumption” started with
Becker’s (1973) demand and supply (D&S) graphical analysis. Ref:
Becker, Gary S. (1973). “A Theory of Marriage: Part I.” Journal of
Political Economy 81(4): 813-846.[Note: Becker’s theory of marriage includes
many models other than the D&S models –see Grossbard (2010). “How ‘Chicagoan’ are
Gary Becker’s Economic Models of Marriage?” J of History of Economic Thought,
32(3):377-395.] [Marriage markets have also been mentioned by sociologists and
demographers prior to Becker 1973, but they rarely made the connection
between D&S levels and individual consumption]
• Advantages of D&S analyses of marriage include simplicity and
compatibility with well-known price-theoretical models of markets for
goods and resources.

Sex ratios are an important and easy-to-measure
indicator of Marriage Market conditions
• Sex ratios are the ratios of men to women who could possibly marry
each other in a marriage market.
• Basic idea in Becker: sex ratios affect a person’s implicit price in
marriage in terms of his or her share of marital income,
thereby influencing individual consumption of married men and women.
• Becker published two D&S analyses of sex ratio effects, including
• Model 1 in Becker (1973, Fig. 1), which presents a market for men willing to
marry. He assumes monogamy, that all men are identical, and that all women
are identical.
• Model 2: a hedonic model with many types of men and women.

Becker’s models with analyses of sex ratio
effects on consumption ..Model 2
• Becker (1973) expanded this D&S analysis of sex ratio effects to marriage
markets for women and men of a particular type when there are large
numbers of types of men and women who could serve as substitutes. He
graphed a Marshallian D&S model for a particular type of man and a
particular type of woman (Fig. 2). [Rao (1993) is possibly the first to have used the term
‘hedonic’ to describe this kind of multi-market D&S model of marriage.]
• Higher sex ratio  more demand for brides relative to supply  women
obtain a higher price men let women get higher portion of marital
income, i.e. women’s personal consumption is relatively higher compared
to that of their husbands
Higher Sex Ratio  Higher relative D for women 
Higher p of women Higher consumption for wives
relative to husbands

Problem with Becker’s models with analyses
of sex ratio effects on consumption
• In all of Becker’s models of marriage, marriage involves a total merger
of income, resources and home production.

My Demand and Supply (D & S) model of
marriage
• I dropped Becker’s assumption that marriages are total mergers between two individuals. I assume that
individuals remain independent decision-makers whether they are married or not while
they are part of small non-profit firms in which at least one spouse does household production work.
• Work-In-Household (WiHo) is defined as time in household
production that benefits a spouse [Source: Amyra Grossbard. "An Economic
Analysis of Polygamy: The Case of Maiduguri," Current Anthropology, 17 (4): 701-707, 1976;
Amyra Grossbard-Shechtman. "A Theory of Allocation of Time in Markets for Labor and
Marriage," Economic Journal, 94(4): 863-882, 1984.]
• Marriage institutions regulate labor contracts between
independent spouses, in a manner similar to how
employment institutions regulate labor contracts between
workers and employers (see Shoshana Grossbard-Shechtman and Bertrand
Lemennicier. "Marriage Contracts and the Law-and-Economics of Marriage: an Austrian
Perspective,"Journal of Socio-Economics, 28: 665-690, 1999).

66
Readings: More on WiHo and its price: Grossbard 2015,
Shoshana Grossbard Sabe @Sibiu keynote address

• Adapting Becker’s sex ratio analyses to markets for WiHo and adding
the assumption of traditional gender roles

Hours of women’s WiHo
Price of WiHo
Supply of WiHo by women
A Market for Women’s WiHo benefiting Men
Demand for women’s WiHo by men
Equil price
Equil quantity

The WiHo model (cont.)
• leads to the same prediction that Becker obtained. Now consider a
higher number of men, but the number of women remains the same.
The demand is now the red demand:

Hours of women’s WiHo
Price of WiHo
Supply of WiHo by women
A Market for Women’s WiHo benefiting Men
Demand for women’s WiHo by men
Equil price
Equil quantity
Demand when more men
Higher price

Sex ratio effects ac to the WiHo model
• Direct relationship between sex ratios and women’s relative
consumption in a couple:
• Higher sex ratio  wives’ consumption in marriage high relative to
that of husbands

Sex ratio effects (cont.)
• Same conclusion follows from bargaining models, such as Apps & Rees,
Chiappori, etc.
• Two advantages of WiHo analysis relative to Becker’s analysis and that of
other models:
• In my model the implicit price is not the price of a person (husband or wife) as in
Becker, it is the price of the time that a WiHo-working spouse spends working for the
benefit of another spouse.
• Sex Ratio Analysis of consumption can be easily extended to
the analysis of (1) sex ratios and labor supply and (2) sex ratios
and savings.
• Refs: Apps, Patricia and Ray Rees (1988). “Taxation and the Household.” Journal of Public
Economics 35:355-369; Chiappori, Pierre-Andre (1988), "Rational Household Labor
Supply." Econometrica 56:63-90.

Sex ratios and labor supply
• Higher sex ratios  higher implicit prices of women’s WiHo
where traditional gender roles prevail  higher women’s
opportunity cost of work in the labor force.
When sex ratios are higher women (men) will supply less
(more) labor to the labor market
Easy to test since there are data on sex ratios and data on labor
supply. Implicit prices can’t be measured. Data on individual
consumption by husbands and wives became available relatively
recently, and they are still problematic. Many goods are
household public goods and not assignable to an individual

My work on sex ratios and labor supply
• Hypothesis was first formulated in David M. Heer and Amyra
Grossbard-Shechtman. "The Impact of the Female Marriage Squeeze
and the Contraceptive Revolution on Sex Roles and the Women's
Liberation Movement in the United States, 1960 to 1975," Journal of
Marriage and the Family, 43(1): 49-65, 1981.
• It was formally derived in Amyra Grossbard-Shechtman. "A Theory of
Allocation of Time in Markets for Labor and Marriage," Economic
Journal, 94(4): 863-882, 1984 I spent many years testing it in various
papers,
• Evidence: Using cohort variation in sex ratio

Sex ratio effects on additional outcomes
• Sex ratios affect women’s relative bargaining power in markets for
dating and marriage.
• In a joint paper with the late demographer David Heer we postulated
that if sex ratios are low, i.e. women in oversupply, the price of their
“services”, including their supply as partners in sexual relationships,
would be lower. Assuming that men have more of a preference for
short-term relationships relative to women, if men’s bargaining power
increases due to lower sex ratios, there will be more casual sex, fewer
marriages, more children born out of couple.
• We also associated low sex ratios with higher participation of women
in labor force and higher education

A natural experiment in low sex ratios/ Cohort
variation in sex ratio
• The first baby-boomers born right after WW II. Since so few babies were
born during the war, the women born after the war had to face ‘marriage’
markets with low sex ratios. According to a simple calculation, assuming all
men are two years older than the women when they first marry/date the
sex ratio of men born in 1944-1948 to women born in the years 1946-1950
was 87 men for every 100 women. 13 missing men!!!
• Heer and GS 1981 thus explained why first baby boom women
experienced: women’s labor force participation while married, enrollment
in higher education, births out of couple, rapid increase in non-marital
cohabitation.
• Shoshana Grossbard-Shechtman and Clive W. Granger. "Women’s Jobs and
Marriage, Baby-Boom versus Baby-Bust," Population, 53: 731-52,
September 1998 (in French: Travail des Femmes et Mariage du baby-boom
au baby-bust”).

Opposite case, another natural experiment
• Low sex ratios for the cohorts born around the legalization of abortion in
the US
• Due to drastic reduction in births in the period 1970 to 1974, the sex ratio
for men born in 1969 to 1973 divided by women 1971 to 1975 was very
high: 1.07, i.e. 7 missing women for every 100 men
• As a result: slow growth (and even some declines) in married women’s
labor force participation (Shoshana Grossbard and Catalina Amuedo-
Dorantes. “Cohort-level Sex Ratio Effects on Women’s Labor Force
Participation,” Review of Economics of the Household 5:249-278, 2007.)
• It does not appear that marriage rates went back up, however, but a
careful study of the type we did for labor supply could detect changes in
trends consistent with changes in sex ratios.

Cohort variation, sex ratio and labor supply of
women
• for the years 1965-2005 for four U.S. regions and multiple
cohorts, we assume fixed difference in men and women’s age
at marriage and showed that the higher the sex ratio the less
married women are likely to participate in the labor force.
[source: Shoshana Grossbard and Catalina Amuedo-Dorantes. “Cohort-level
Sex Ratio Effects on Women’s Labor Force Participation,” Review of
Economics of the Household 5:249-278, 2007. ]
• The higher men’s age at marriage relative to that of women the smaller the
impact of an imbalance in the sex ratio of people the same age (d’Albis and
de La Croix 2012).Ref: d’Albis, Hyppolite and David de la Croix (2012)
Missing daughters, missing brides? Economics Letters 116, 358-360.

Testing for sex ratio effects on labor supply
Using cross-sectional data
Prediction: women supply less labor and men supply more
labor when sex ratios are higher in a particular geographical
area. However, since migration could be the result of better
labor market opportunities it is hard to prove that in these
geographical comparisons the causality runs from sex ratio
to labor supply. [source: Shoshana Grossbard-Shechtman and Matthew
Neideffer. “Women’s Hours of Work and Marriage Market Imbalances,” in
Economics of the Family and Family Policies, edited by Inga Persson and
Christina Jonung, London: Routledge, 1997; and Chiappori, Pierre-Andre,
Bernard Fortin and Guy Lacroix ((2002). Marriage market, divorce legislation,
and household labor supply. Journal of Political Economy, 110, 37-71.]

Sex ratio analyses also in sociology and social
psychology
• In particular: Guttentag, Marcia and Secord, Paul F. (1983) Too Many
Women: The Sex Ratio Question. Beverly Hills: Sage Publications.
• This book made similar inferences about effect of sex ratio on a
number of outcomes related to marriage markets; many of the same
insights as in Heer and GS.

Sex ratio and savings
• If sex ratios are expected to affect consumption in a one-period
model they will also affect consumption over different time periods,
and therefore they will affect savings rates.

Sex ratios also affect savings
• Has recently been documented by Du and Wei (2013) and Wei and Zhang
(2011) using Chinese and cross-country data. They find that savings rates rise
when sex ratios are higher. (refs: Du, Qingyuan and Shang-Jin Wei (2013). “A Theory of
Competitive Saving Motive,” Journal of International Economics 91: 275-289; Wei, Shan-Jin and
Xiaobo Zhang (2011) “The Competitive Savings Motive: Evidence from Rising Sex Ratios and
Savings Rates in China,” Journal of Political Economy 119 (3): 511-564.
• This is consistent with an analysis of sex ratio effects on marriage markets
assuming traditional gender roles and that changes in overall savings are
dominated by changes in men’s savings. A higher implicit market price for
women working in WiHo after marriage (due to higher sex ratios) implies that
men may be induced to save more prior to marriage, so they can better afford
marriage. [More on this topic is found in Grossbard and Pereira (2010) and my recent book:
Shoshana Grossbard and Alfredo M. Pereira “Will Women Save more than Men? A Theoretical
Model of Savings and Marriage” CESifo Working Paper No. 3146, August 2010.]

Other applications of marriage market analysis
using possible indicator of caring time: time in
chores
• Compensating differentials in marriage. In hedonic markets
with men and women with different characteristics the
individuals with characteristics that are relatively not in
demand (for instance old vs young; black vs white where
there is a preference for light complexion) will have to pay
compensating differentials. This may take the form of
working more either in household production or in the labor
force. [More about this in Shoshana Grossbard, Jose Ignacio Gimenez
and Jose Alberto Molina. “Racial Intermarriage and Household
Production”, Review of Behavioral Economics 1(4):295-347, 2014.]

Economic analysis of marriage AND Law and
Economics
• Many implications of this kind of analysis to the field of Law and
Economics. Are marriage laws fulfilling their purpose? Divorce laws? Age at
marriage laws? Laws imposing monogamy?
• Here is a list of my publications on these topics:
On polygamy:
• Shoshana Grossbard. "Polygamy and the Regulation of Marriage Markets"
in The Polygamy Question, edited by Janet Bennion and Lisa Fishbayn Joffe
Utah State University Press/University Press of Colorado, pending May
2015.
• Shoshana Grossbard. "Sex Ratios, Polygyny, and the Value of Women in
Marriage—a Beckerian Approach", J of Demographic Economics, vol 81 (1),
pp13-25, 2015.

On Common Law Marriage
• Shoshana Grossbard and Victoria Vernon. "Common Law Marriage
and Male/Female Convergence in Labor Supply and Time
Use", Research in Labor Economics, Vol. 41 on Gender Convergence in
the Labor Market, pp. 143-175, 2015.
• Shoshana Grossbard and Victoria Vernon. "Common Law Marriage
and Couple Formation", Special issue in honor of Gary Becker, IZA
Journal of Labor Economics 3:16, 2014.
• Amyra Grossbard-Shechtman. "A Theory of Marriage Formality: The
Case of Guatemala," Economic Development and Cultural Change,
30(4): 813-830, 1982.

On marriage contracts
• Shoshana Grossbard. "Repack the Household: A Comment on Robert
Ellickson's Unpacking the Household," in Yale Law Journal Pocket Edition,
April, 2007.
• Shoshana Grossbard-Shechtman and Bertrand Lemennicier. "Marriage
Contracts and the Law-and-Economics of Marriage: An Austrian
Perspective," Journal of Socio-Economics, 28: 665-690, 1999.
• Shoshana Grossbard. "Competitive Marriage Markets and Jewish Law,"
in The Economics of Judaism and Jewish Human Capital, edited by Carmel
U. Chiswick and Tikva Lecker with Nava Kahana. Ramat-Gan, Israel: Bar Ilan
University Press, (2002) Revised Version 2006.
• Amyra Grossbard-Shechtman. "Economics, Judaism, and Marriage," Dinei
Israel, A Journal of Science and Jewish Law, 1986 (in Hebrew).

On Divorce
• Olivia Ekert-Jaffe and Shoshana Grossbard. "Does Community
Property Discourage Unpartnered Births?" European J of Political
Economy 24(1):25-40, 2008.
• Shoshana Grossbard-Shechtman. "Marriage Market Models" in M.
Tommasi and K. Ierulli (eds.), The New Economics of Human
Behavior. Cambridge: Cambridge University Press, 1995.
• Shoshana Grossbard-Shechtman "The Economics and Sociology of
Marriage: Historical Trends and Theories of In-Marriage Household
Labor": in S. Grossbard-Shechtmand and C. Clague (eds.) On the
Expansion of Economics, Armonk, N.J.: M.E. Sharpe. 2001

Conclusions
• I hope I have been able to generate a bit of interest in the analysis of
marriage markets and marriage contracts. At the root of this analysis are
simple D & S models of dating and marriage
• The analysis uses IMPLICIT prices for the caring work of men and women
that they are willing to supply in a couple (possibly married). Analyses of
marriage typically don’t have data on prices.
• An exception: data on brideprice and dowry. My own work on that topic is found in
(Book) Shoshana Grossbard-Shechtman On the Economics of Marriage - A Theory of
Marriage, Labor and Divorce. Boulder, CO: Westview Press, 1993.
David Bishai and Shoshana Grossbard. “Far Above Rubies: The Association between
Bride Price and Extramarital Sexual Relations in Uganda”, J of Population
Economics23(4): 1177-1188, 2010.

Conclusions (cont.)
• Nevertheless, marriage market analyses can proceed without data on
prices of brides and grooms or WiHo prices, because observable
outcomes are related to such implicit prices in at least 3 cases:
• Consumption
• Labor Supply
• Savings
• Marriage market analysis assumes that prices exist, and of course this
implies that there are exchanges. If they are exchanges of time for
money, the prices can be interpreted as the “WAGES” paid for caring
work in the household.

Conclusions (cont. )
• Household economics encompasses much more than marriage
market analysis: it deals with many outcomes and many explanatory
factors. Today I also discussed exchanges of caring time for money in
extended households, between parents and grown children.
• Household economics is not only about exchanges of time for money
but about all outcomes that are analyzable within the framework of
economics, perhaps with the help of psychology, sociology, and other
disciplines.
• There is clearly much more that can be done to enrich our knowledge
in household economics.

The Review of Economics of the Household has already
Published innovative articles that enrich Household Economics.
We hope to publish many more in the future
Thank you.

Household economics keynote sep 4 2015 edited sept 10

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