Intra-household Resource Allocation and Familial Ties

In this paper, we investigate the link between intra-household resource allocation and familial ties between household members. We show that, within the same geographic, economic and social environments, households where members have ‘stronger’ familial ties (nuclear family households) achieve near Pareto efficient allocation of productive resources and Pareto efficient allocation of consumption while households with ‘weaker’ familial ties (extended family households)do not. We propose a theoretical model of the household based on the idea that altruism between household members vary with familial ties which generates predictions consistent with the observed empirical patterns.