Tuesday, January 13, 2009

How to make a basic model of household decisions

This past weekend I went to New York City for my five year anniversary trip, had a great time! When I got back I was catching up on my reading of Grinnell’s intra-blog system (plans), which was having a fierce discussion of the tradeoffs of being a stay at home parent.
There is a lot of economic discussion of the decision, I still think of the decision in the context of a model I learned in graduate school.

The model, suppose we have a typical household with a male and female who split their time working outside the home to earn money or can do housework. Money can be used to buy things like food, clothes, cars, ect., while housework can produce output for the house (meals, cleaning, child rearing) too, although it may need some of the good purchased with money (you can make dinner with the food you bought). Money can also be used to replace housework, you can go out to eat, get someone else to clean your house or watch your kids.

Really, the goal of any household is to do outside work, household work, and leisure in the amounts that produce the best outcome for the household. I'm of the opinion that this is different for every family, so what ever you want to do go for it.

So what complicates the decision? Men and women sometimes have different preferences, one person might want a cleaner house or have a preference for home cooked meals. Men and women sometimes have different earning abilities, which may influence who works inside and outside of the home. Finally, some have argued that biological difference particularly for breast feeding may make it easier for the woman to specialize in housework if it includes child rearing.
The model does fail to take into account societies beliefs (although, it could). If men or women gain/lose status for being stay at home, then this could also influence decisions. All the above can be adjusted in a more complex model.

I feel the standard model really fails when I ask myself the question would I still work if I had 10 million dollars in the bank, and I think I would quit my job. So happiness may in part be derived from work for me, maybe not for you.

Luckily, my wife and I agree generally on the balance of work and producing goods at home.

Now who’s turn is it to clean the bathroom?
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