In Discussion Paper No. 1312, Research Fellow Kai Konrad and Kjell Lommerud suggest a family bargaining model where human capital investment decisions are made non-co-operatively in a first stage, while day-to-day allocation of time is determined later through Nash bargaining, but with non-cooperative behaviour as the fall back. The 'education investment decision' has long-lasting effects on spouses' labour market productivity and affects not only the size of future mutual gains of co-ordinated family life, but also the distribution of these gains between spouses in the event of a divorce.

Although several authors have claimed that non-cooperative behaviour is a more appropriate fall back in family bargaining than utilities as a single, it is argued that the empirical implications of the two approaches are quite parallel. The reason why the models become so similar is that non-cooperation has many common traits with divorce, the only difference is that when a spouse leaves the household the utility derived from some of the family public goods is reduced, perhaps to zero. A further finding is that over-investment in education may be even more of a problem in this mixed co-operative/non-cooperative model than in a fully non-cooperative one.

The Bargaining Family Revisited
Kai A Konrad and Kjell Erik Lommerud