Families: Economic Functions and Decision-Making

Abstract

This chapter introduces readers to the field of family economics. It defines “family” from an economics perspective and then details the economic functions of the family: human capital creation, social capital creation, household production of goods and services, economies of scale and public goods provisioning, consumption and savings decisions, and risk-sharing and self-insurance. Then it looks at three models of household decision-making: altruism, bargaining, and exchange. The way economists would analyze public policies depends on assumptions about families’ decision-making, and the chapter illustrates how the different models affect policy analysis.