(In)Efficient Bargaining in the Family

This paper describes how families bargain to reach an agreement recognizing that the negotiation process is costly and often difficult. Our focus is not only on the efficient outcomes of the decision process but also on the bargaining process. We propose an evolutionary bargaining approach that identifies who is willing to make a concession depending on the perceived cost of bargaining failure. The theoretical analysis extends the original Nash-Harsanyi cardinal representation to ordinal preferences and rationalizes agreements that can be inefficient. Implications for efficiency and income distribution are discussed. We illustrate the usefulness of our theory in an empirical application.