The Demand for Grandchildren: Children as Family Public Goods and Implications for Cooperative Bargaining

The title says it all. Well, almost all. To economists, the situation suggests bargaining between parents and grandparents, where the grandparents can "bribe" the parents to have more children or to have children sooner than they otherwise would. Because cash transfers seem inappropriate, bribes are likely to take the form of promises of child care or down payments on houses. Coasian bargaining or, more generally, cooperative bargaining models with their explicit assumption of Pareto efficiency offer accessible off-the shelf models. Larger family size (e.g., the participation of both pairs of grandparents) and family complexity (e.g., resulting from divorce and repartnering in the parents' generation or the grandparents' generation) threaten the assumption of zero or low transaction costs. Low transaction costs, explicit in the Coasian analysis and implicit in cooperative game theory's assumption of Pareto efficiency, play a crucial role. The generalization of family economics from the analysis of bargaining between spouses to include family members beyond the household will at some point require replacing Coasian and cooperative bargaining with models of noncooperative bargaining.