The economics of family and group decisions

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Lee, Jungmin

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This thesis examines group decision-making processes with emphasis on households’ decisions and behaviors. It is interesting to study the underlying decision-making processes within multi-person groups and organizations by extending and applying our knowledge in microeconomic theory: what is the raison d’tre for such institutions, when they are created and dissolved, and how they aggregate and resolve different preferences and values among members. The first essay estimates the trade-off between child quantity and quality by exploiting exogenous variations in fertility due to son preference, which prevails in many Asian countries. I find for the sample of Korean households that taste covariance is not minimal; adverse effects of fertility on child quality is, if any, smaller than what would be inferred from a cross-sectional relationship. The fall in fertility rate over the past decades does not account for increasing investment in children’s education. Linking population policy to fostering human capital could be misleading. The second essay utilizes longitudinal data to analyze the spouse’s individual budgets – “pocket money.” This unique data set allows for the specification of simultaneous process of household decision-making in a fully stochastic fashion. By doing this, it is possible to differentiate unobservable spousal bargaining power from heterogeneity at the household level. I find that while increasing female labor force involvement does lead to resource reallocation toward women within households, the favorable effect is not significant. On the other hand, a general improvement of family income has negative impacts on intra-household inequality, which partially confirms the Kuznets curve at the micro level. Lastly, spouses are significantly different in their preferences for education and clothing, but they are not for some other goods. The last essay examines a different context, beyond households, in which a group of individuals make aggregate decisions. Using the data on figure skating judges’ scorings, I find significant evidence for the existence of outlier aversion. Individual judges manipulate scores to achieve a targeted level of agreement with the other judges, and the dispersion of scores depends upon the type of judge-assessment system. One major implication of this paper, which is at variance with the industrial psychology and personnel management literature, is that agreement may not be a good criterion for the validity of an evaluation system.