The household is the basic economic unit and the nucleus of social relations in both developed and developing countries. Individual motivations to optimize one’s own behavior, as well as interactions between individuals within the household and especially within the couple are essential to achieve economic optimality. Another very important institution in developing countries is the extended family, seen as all the people linked by blood ties. Both the household and the enlarged family can be important sources of insurance and credit when formal financial markets are not working properly. Since family ties allow an easy flow of information and give the opportunity to implement strong social sanctions, the family is a privileged vector of financial transactions. To date, the majority of decision models within the household have either considered the household as a single decision-maker or made the hypothesis of the existence of an efficient bargaining process deriving from the possibility of a stable commitment between actors and of a perfect exchange of information. At the same time, there have been several empirical works showing that the hypothesis of Pareto optimality and complete insurance within households can typically be rejected: spouses do not always pool their income and individual consumption responds to individual income shocks, violating the hypothesis of full risk sharing. During my PhD, I personally conducted, in collaboration with Jean-Marie Baland, Isabelle Bonjean and Catherine Guirkinger, an extended household survey in the city of Bafoussam (West Cameroon), to study transfer within the household and the extended family. We recorded the choices of each adult in the households about consumption, savings, transfers and sharing of information. We observed that, in many households, the perception of other household members’ income is highly imperfect. I therefore decided to study theoretically the issues of cooperation and communication within the household. First, I studied how differences in discount factors can affect the distribution of utility in the household and the possibility of cooperation. Then, I developed a model that studies the interaction between asymmetries of information and public good contributions. One of the main results I obtained is that, in a non-cooperative setting, a reduction in the amount of information available to the spouses can paradoxically reduce the incentive to free-ride on the partner and spouses find it always optimal to hide their income. Nevertheless, when spouses have different productivity in providing public goods, they have incentives to make transfers between them, making the revelation of part of the income realization optimal in equilibrium. Those theoretical predictions were supported by empirical evidence coming from the first-hand dataset collected in Cameroon. Furthermore, I have also introduced the possibility of asymmetries of information on preferences of the spouse, and determined which are the conditions to reach constrained efficiency in such an environment. I show that a constraint on the use of purchased goods always allows to enlarge the set of incentive-compatible mechanisms. Empirically, I have exploited a natural experiment to study the effect of introducing asymmetries of information in the household. In 1965, a reform of the French marriage law abolished the requirement of the husbands’ signature for women to be able to start working and to open a bank account. This reform changed the institutional framework in which households were operating. I have evidenced substantial effects on both labor choices and education outcomes. Lastly, I used the dataset collected in Cameroon to study the exchange of help in the extended family networks. Transfers appear to be distributed asymmetrically across the extended family and are essentially for education purposes. We then explore the implications of this pattern for fertility as well as for employment choices and asset management finding strong free-riding behavior of the net recipients of the transfers.
- public goods