An Integrated Theory Of Household Behavior

This paper presents an integrated model of household behavior, in which households derive utility not only from flow choices (of goods and leisure activities) but also from stock variables representing the status in health, psychological stress, social standing/reputation, political affiliation, religious identity, and any other status deemed relevant for their well-being. To attain the status in any of these dimensions, proper investment is necessary in accordance with a suitable mediating function that connects flow choices to the status in question. We depart from the position that statuses activate motivation, thereby affecting the efficiency of activities including working time. In particular, health not only yields utility of its own kind but also affects the productivity of households, thereby expanding their budget sets and raising the utility they attain now and in the future. Health, however, must be attained and maintained, and this has to be accomplished in accordance with a plausible health-production function defined on the space of goods and leisure activities. The same can be said about knowledge and skill acquisition, which requires investment of certain activities and goods through an appropriate mediating function. Similar relationships also hold for social, psychological, and other statuses, which can only be acquired through proper mediating functions. While the utility calculus appears complex, we demonstrate that the optimum choice of goods and leisure activities is guided by the rationality principle that requires that the composite marginal utility, defined as the total of all marginal utilities from the entire sources of utility, direct or mediated, be balanced with properly measured cost of acquiring it, which is shown to equal, the price or the wage rate on the market adjusted for a change in the efficiency of working time mediated through health enhancement and/or an increase in the productive efficiency of working hours due to knowledge and technology acquisition. Because our model includes utility arising from status-orientation in multiple dimensions, and because the extent and the range of such utility are socio-cultural-regime-specific while also being shaped by the household-specific receptivity and orientation to this regime, our model can potentially explain a diverse range of choice behavior some of which appear anomalous or even counter-intuitive to the rationality principle in the traditional sense. This added explanatory power helps close a gap between economics and other social sciences.