Bargaining Power and Equilibrium Consumption



1 Introduction

Societies often experience a shift of bargaining power in households. For instance,
ceteris paribus, the modern heterosexual couple (multi-member household) is distin-
guished from the traditional heterosexual couple (household) by a shift of bargaining
power in favor of the female partner (female parent, woman in the household). Such
a shift induces a change in household demand for goods and services. In turn, mar-
ket clearing might occur at different prices and, consequently, the terms of trade for
households might be altered.

It is the consequences, not the causes of shifts in intra-household bargaining power
that interest us here. We are concerned with pure economic (positive) effects on the
allocation of resources, as well as welfare (normative) effects at both the individual and
societal levels. We are going to study those effects in a general equilibrium context.
Our study reveals that the magnitude of equilibrium price responses to a shift of
intra-household bargaining power matters. If price effects are sufficiently small, then
typically an individual benefits from an increase of bargaining power — necessarily to
the detriment of others. In particular, the other member(s) of the household will lose.
In contrast, if price effects are drastic, then the members of the individual’s household
all benefit or are all harmed. Typically a shift of bargaining power within a set of
households also impacts upon other households. We show that each individual of a
sociological group tends to benefit if he can increase his bargaining power, but suffers if
others in his group enjoy more bargaining power. For quasi-linear preferences, however,
a change of the bargaining power within a particular household only impacts on the
distribution of the num´eraire in the household under consideration without affecting
the consumption of other commodities. A local change of bargaining power has no
price effect and does not affect the utility of individuals in other households.

The underlying model of the household satisfies collective rationality in the sense of
Chiappori (1988a, 1992).
1 It departs from traditional economic theory which has, for
the most part, treated households as if they were single consumers. The model admits
households with several, typically heterogeneous members who have individual prefer-
ences. A household takes market prices as given and makes an efficient consumption
choice (in terms of the preferences of its members) subject to its budget constraint.
Different households may use different collective decision mechanisms. This departure

1See also the surveys by Bourguignon and Chiappori (1992, 1994).



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