October 2007

IZA DP No. 3127: Cooperative Household Models

Patricia Apps, Ray Rees

We set out a general framework for cooperative household models, based on Samuelson's idea of a household welfare function, but extending it to incorporate the key insight from Nash bargaining models – the idea that the household’s preference ordering over the utility profiles of its members depends on their wage rates (or prices more generally) and non-wage incomes. Applying reasonable general restrictions on the effects of changes in these variables allows derivation of the general implications of cooperative models.