form multiperson households each individual essentially gives up his/her utility function in
exchange for a new household utility function. This is the theoretical approach pursued by
Becker (1991). Individual income constraints are then replaced by household income
constraints. Earnings are pooled to buy goods for household consumption and wage changes
have not only the usual own income and substitution effects but also income and cross-
substitution effects upon one’s partner’s time use. Empirical work such as Solberg and Wong
(1992) has employed this framework, but often rejects the theoretical predictions that
expenditures are not dependent upon who in the household receives the income (that income
is pooled) and that compensated cross-wage effects are symmetric (see Lundberg and Pollak
1996 for a review of the literature and an empirical critique).
Apps and Rees (2007) expand upon Becker’s model by introducing individual wages
and nonlabor income as arguments in the household utility model. This generalized
household welfare function allows each individual’s contributions to the household to have a
differential impact on outcomes, thus bringing the model’s predictions more in line with
empirical findings.
Alternative approaches to modeling household decisions assert that individuals
maintain their individual utility functions (likely modified to incorporate the utility of other
persons) and bargain either cooperatively or non-cooperatively to determine outcomes. Some
early articles include McElroy and Horney (1981) and Manser and Brown (1980). More
recent work in this vein includes Lundberg and Pollak (1994, 1996).
Another branch of the literature has focused upon collective models of household
decision making (Chiappori 1992). These models recognize that individuals have distinct
utility functions (U1 and U2) but suggest that individuals cooperate when coming together to