Elisabeth Gugl

The Early Bird Gets the Worm? Birth Order Effects in a Dynamic Family Model

Birth order effects are found in empirical work but lack solid theoretical foundations in economics. Our new modeling approach to children provides this. Each child’s needs change as it grows, and births are sequential. Each child has the same genetic makeup and parents do not favor one child over the other. Parental childcare time lowers the caregiver’s current and future wages; this opportunity cost varies across time. Benefits also vary and when parental childcare is a public input, coresident children allow economies of scope in childcare. Birth order effects emerge from the changing benefits and costs. (JEL D13, D91, J13)

Share the Gain, Share the Pain? Almost Transferable Utility, Changes in Production Possibilities, and Bargaining Solutions

We consider an n-person economy in which efficiency is independent of distribution but the cardinal properties of the agents’ utility functions may preclude transferable utility (a property we call “Almost TU”). Holding the disagreement point fixed, we show that Almost TU is a necessary and sufficient condition for all agents to either benefit jointly or suffer jointly with any change in production possibilities under well-behaved generalized utilitarian bargaining solutions (of which the Nash bargaining and the utilitarian solutions are special cases). We apply the result to policy analysis and to incentive compatibility.

Efficiency of Family Bargaining Models with Renegotiation: The Role of Transferable Utility across Periods

In dynamic family bargaining models, it is often assumed, for simplicity, that spouses have transferable utility as well as identical and constant marginal rates of intertemporal substitution. It has been argued that as long as spouses are at an interior solution, renegotiation does not hinder efficiency. We show that identical and constant marginal rates of intertemporal substitution (i.e., transferable utility across periods) are the source of this efficiency result. Even at an interior solution, renegotiation can cause inefficiency if marginal rates of intertemporal substitution are not constant. Our model is the first to both identify this source of inefficiency in a bargaining model in which the threatpoints of later periods are determined endogenously and demonstrate that there is no one-size-fits-all policy regulating divorce that can restore efficiency when couples are allowed to differ in their initial wage rates and/or preferences.

Relevant Irrelevance: The Relevance of Independence of Irrelevant Alternatives in Family Bargaining

Introducing production to a family bargaining model immediately sets the stage for the axiom of Independence of Irrelevant Alternative (IIA). Requiring that bargaining solutions satisfy IIA rules out the Kalai-Smorodinsky solution, but the broad class of Generalized Utilitarian bargaining solutions satisfies this axiom. I show that In the case of utility profiles that lead to almost transferable utility, IIA has no bite because the utility possibility frontier before and after production coincide. Almost TU is an important subdomain of all utility profiles and much broader than transferable utility, but it is still restrictive. Hence IIA is a desirable axiom of family bargaining solutions. I focus on bargaining within the family but the argument for IIA as a relevant property of bargaining solutions applies to other bargaining problems as well in which goods are produced or second period renegotiation takes place.

Discussion of 'the Effect of Sunk Costs on the Outcome of Alternating-Offers Bargaining between Inequity-Averse Agents'

In his article, Ewerhart argues that agents with inequity-averse preferences may overcome the hold-up problem. In this discussion, I focus on the underlying assumptions that he makes and point to some limitations of the model.