Pierre André Chiappori (Columbia) "Family Economics" - Cemmap

244 6. Uncertainty and Dynamics in the Collective model
least in the ex ante sense. 1
The theoretical analysis underpinning these issues leads to fascinating
empirical questions. Again, these can be formulated in terms of testability
and identifiability. When, and how, is it possible to test the assumption of
perfect commitment, and more generally of ex ante efficiency? And to what
extent is it possible to recover the underlying structure - namely individual
preferences (here, aversions to risk and/or fluctuations) and the decision
process (here, the Pareto weights) from observed behavior? These questions
- and others - are analyzed in the present chapter.
6.1 Is commitment possible?
We start with a brief discussion of the commitment issue. As discussed
above, credit implies repayment, and the very reason why a formal credit
market may fail to be available (say, non contractible investments) may
result in enforcement problems even between spouses. As the usual cliche
goes, a woman will be hesitant to support her husband through medical
school if she expects him to break the marriage and marry a young nurse
when he finishes (this is a standard example of the hold-up problem). Similarly,
risk sharing requires possibly important transfers between spouses;
which enforcement devices can guarantee that these transfers will actually
take place when needed is a natural question. In subsequent sections we
shall consider conventional economic analyzes of the commitment problem
as they relate to the family. In the remainder of this section we consider
possible commitment mechanisms that are specific to the family.
From a game-theoretic perspective, marriage is a typical example of repeated
interactions between the same players; we know that cooperation
is easier to support in such contexts. 2 This suggests that, in many case,
cooperation is a natural assumption. Still, the agents’ ability to commit is
probably not unbounded. Love may fade away; fidelity is not always limitless;
commitment is often constrained by specific legal restrictions (for
1 A second problem is information: in general, efficient trade is much easier to implement
in a context of symmetric information. Asymmetric information, however, is
probably less problematic in households than in other types of relationship (say, between
employers and employees or insurers and insurees), because the very nature of the
relationship often implies deep mutual knowledge and improved monitoring ability.
2 Del Boca and Flinn (2009) formulate a repeated game for time use that determines
the amount of market work and housework that husbands and wives perform. Their
preferred model is a cooperative model with a noncooperative breakdown point. They
have a repeated game with a trigger strategy for adopting the inefficient non-cooperative
outcome if the discount is too small. The value of the threshold discount factor they
estimate to trigger noncooperative behavior is 0.52which implies that 94% of households
behave cooperatively.