The Empirical Content of Nash-Bargained Household Behavior

Abstract

In households whose allocation decisions can be represented as Nash-bargained household decisions, extrahousehold environmental parameters (EEPs) serve as pure shifters of the threat points. The comparative statics of changes in demands due to changes in these EEPs are given. These are incorporated into a comprehensive statement of the empirical content of Nash-bargained household behavior, including a Nash generalization of Barten's (1966) fundamental matrix equation of the theory of consumer demand. Estimation and data requirements are discussed along with nested testing of the following structure: the neoclassical model is nested in the Nash-bargained model which, in turn, is nested in an unrestricted model of household demands. Emphasized throughout is the enriched menu of explanatory variables for demand analysis provided by the Nash model, as well as the model's ability to jointly analyze (i) household formation and (ii) intrahousehold allocation decisions.