Essays on intrahousehold bargaining, risk-sharing, and the optimal balance between private insurance and the welfare state
This thesis comprises three essays in the field of applied microeconomic theory. In the first essay we present a generalized Nash model of household decision making that does not restrict a priori the household's location on the Pareto frontier and that allows the opportunity cost of household membership to influence the intrahousehold allocation of resources. This approach generalizes both the collective and the symmetric Nash models of household decision making. Formally, we derive the restrictions on household demands implied by the generalized Nash model and we show that the collective model, the symmetric Nash model and the traditional (unitary) model of the household are all special cases of the generalized Nash model. In the second essay we analyze the optimal risk-sharing contract to emerge between two risk averse individuals under repeated double moral hazard. Several interesting properties of the optimal contract emerge. First, the contract is less sensitive to the performance of any single individual than would have been the case under single moral hazard. Second, a well-known condition describing the optimal level of intertemporal consumption smoothing under repeated single agency is generalized to take account of the double incentive problem. In particular, when both individuals face binding incentive constraints then the expectation of the ratio of person i's to person j's marginal utility in period t is strictly greater than the known ratio of person i's to person j's marginal utility in period t - 1, i,j = 1,2, i /= j. In the final essay we examine the optimal balance between the provision of income insurance through family networks and provision through the redistributive tax system. We demonstrate that even when there is full risk-sharing within the family there are nevertheless further welfare gains to be achieved through an appropriate level of government intervention. We also demonstrate that where intra-family moral hazard implies that only partial risk-sharing is achieved within the family, the existence of further welfare gains from government intervention will depend on the effects of such intervention on the intra-family income transfer and on effort incentives.