"Hen-pecked" or "Not Hen-pecked": The Research on Factors Affecting Chinese Household Financial Decision-making Mode
会计学院 2016级硕士研究生 ***
【Abstract】In this paper, we use the database of CHFS to study the factors in the decisions of the allocation of family financial rights. We focus on exploring the effects of a husband and wife financial discourse of their income gap. The results show that when the husband is a party member, or the wife is a party member as well as financial practitioner, the husband is more likely to make family financial decisions. And the more income a husband earns the greater likelihood of his making decisions in the family financial affairs. In terms of the income gap between spouses, we find that a husband has more tendencies to make family financial decisions when he earns more compared to his wife’s income. So, we reach the conclusion that hen-pecked husbands can have more financial discourse power when they earn more money. And most hen-pecked husbands do not give up their financial rights without protest, but have to due to their lack of financial resources.
【Key words】Financial Decision; Income gap; Age Gap; Regional Distribution
I. Introduction
Equality between men and women are always the hot spot of world educational research, which embodies the social civilization and progress. One of the fundamental points of equality between men and women is to achieve the gender equality in rights and responsibilities.The article attempts to analyze the equality between men and women of the family in the angle of economics，which is reflected in the equality of distribution in financial decision-making power.Combined with the reality of life, the article is to research financial decision-making of husband and wife in Chinese family based on the “hen-pecked”[1] phenomenon. We define the “hen-pecked” as the husband who volunteer to assign the financial decision-making to his wife, without affecting by his individual talents.The opposite side is defined as the “not hen-pecked”.
Western researches in household finance account for four aspects(Cheryl Doss, 2011): 1.the household utility model; 2. the effectiveness of financial decision; 3.the factors of allocation of resources within family; 4.design behavior experiment to study the family internal decision-making processes. Western countries have conducted comprehensive researches in household finance, while Chinese researches in household finance are in infancy. Owe to the limit of data, there is almost no empirical literature on the factors affecting financial decision-making distribution. Thus the articleprovides a new perspective for academic circles.
The both sides of husband and wife family status reflect as the power of financial decision-making. The article discusses the factors affecting the power of financial decision making in family. The research emphases that: 1.by building income gap index, to research the effect of income gap on stocks decision in family and to verify whether economic strength is affecting the family financial decisions; 2.devide into three groups by ages, which are young, middle aged, and the elderly group, so as to explore the effect of life cycle on the financial decision-making in family. In this paper, we found that: income gap, education years, industry are the important factors affecting the financial decision-making distribution between husband and wife in family. Besides, the income gap between couples and the education years of husband are both significantly positive-related to the decision power of husband. It means the more obvious economic advantages and the longer education years the husband has, the higher probability the husband charges the decisions in family. Then the wife’s industry is significantly negative-related to the decision power of husband. It means when the wife’s industry is fiancé, the probability that the wife charges the decisions in family is higher. Meanwhile, the different time preference has certain influence on “hen-pecked”. Chinese men have larger utility discount factor compared to the Chinese women. It means men pay more attention to short-run benefits and are inclined to own the financial decision-making rights at the very beginning. Thus the levels of “hen-pecked” are increasing as time passes. Finally we explore whether the gender of decision makers would affect the investment income, and we find that the decision makers’ gender would not be significant factors affecting investment income.
II. Literature Review
Family internal resource allocation is an important subject of the western social science research on the equality of husband and wife. Most studies abroad on couples’internal bargaining power and the allocation of resources are mostly based on the female perspective. They hold the opinion that women bargaining ability would influence some key conditions of family, such as the health and education levelof next generation, the female’s benefits and rights, and the distribution of decision-making rights, etc. In addition, the bargaining power of the female can affect household production, such as labor supplies, household, agricultural production and work and so on.For policy makers, therefore, the research on the bargaining power between husband and wife is of great significance.
For the simulation in the family decisions, economists adopted three methods oftheory, namely common preference model, cooperative game model and non-cooperative game model (Pollak, 1994). Common preference model keeps the single form of family the utility function, whose essence is the same with traditional new classical model. Cooperative game model and can be divided intodivorce threat model and separate-spheres models, whose common featureis to use Nash bargaining theory to get Nash solutions corresponding to their respective of threat points.Non-cooperative model inherited non-cooperative bargaining theory established by Rubinstein using strategic method, and discussed the both sides of the reservation utility in determining the role of repeated game solution.The model simulated the bargaining process by dynamic method and considered the status and ability of both bargaining parties. The mode of non-cooperative game model is used by the divorce threat model. The dynamic game models developed by the mode provide a plausible explanation for the phenomenon that the traditional theory failed to explain.
(I) The effect of income on financial decision-making right
A large number of foreign literature show that although the west married women employment increase year by year, but the family finance decision-making right is still less than her husband. The existing theoretical literature research perspectives choose labor economics as a starting point, analyze its impact on family decisions, and argue that inequality of financial decision-making would derive from sexes’ inequality. Whether in the family or in society, women's position is lower than her husband, so they have economic dependence on their husbands to different level. And this dependence makes his wife at a disadvantage in the "negotiations" with her husband, and has to assign the financial decision-making right to her husband (Brines, 1994; Lennon reclaimed, Rosenfield, 1994).In addition, husband is important "maintenance" position in the home, more extensive social networks and strong social skills make the husband easier to achieve the family decision-making right. While the wife is usually limited in the range of family, has less economic resources, so family decision-making power is less than the husband (Blood & Wolfe, 1960; Steil.1997).In the empirical literature, Chery Doss (2013) found that wife's degree of education, income and assets could measure the bargaining power, and the family that the wife has higher bargaining power would have better welfare results. MartinBrownings et al (2013) argues that both sides of couples can get more consumer goods through marriage, including private consumption and public consumption. The couple's bargaining power not only affects the allocation of resources but also affects the number of consumption and spending. Marcos a. Rangel (2006), using the data from Brazil, found that the higher bargaining power the wife grasp, the less timeshe workevery day, and then the more spending for the next generation education. Anandi Mani (2011), using a set of experimental data in the UK, found that the family investment effectiveness has nothing to do with the couple to master information, on the contrary, couples tend to sacrifice the effectiveness of the investment to grasp more family economic resources. SoniaOreffice (2011) found that between the same-sex couples, the higher the age and the higher the non-labor income they have, the behavior individual have higher bargaining ability and they provide less labor. It can be seen that foreign literatures mostly are how the bargaining power between the couples affect the family welfare, including the validity of the allocation of resources, investment, etc. However the literatures barely involve how the bargaining power of husband and wife influence on the distribution of financial decision-making right.Therefore, the study of this paper is innovation to some degree.
For the domestic literature, it can be seen from the literature review of household decision-making theory (Wu guiying, 2002) that past Chinese literatures account for how the financial situation affect the female status and family relationship. In addition, there are literatures about the economic background and the status of rural women(Gong, Zhong, and Sun, 2009), Children’s gender preference and the female’s status (Wu and Li, 2011), and the factors of income gap between the couple (Han xiulan, 2012). The article of Shi daiming (2005) that research the decision of financial assets is a little related to my article, exploring how the household risk-bearing ability, financial situation, and the talent of the household personal endowment affect the decision of household financial assets. However the data of that article comes from the questionnaire survey of local area of Sichuan province, which is not representative enough. The article use the CHFS data in 2013 to investigate the factors of couple’s bargaining power in the angle of household finance, explore how the income affect the distribution of decision-making right, providing a new angle for the household finance area.
(II) The effect of time preference on financial decision-making right
In the classical finance theory, the objective function of decision model across the period is a utility function that is time addictive and state separable, and the single-period utility can be discounted by exogenous and exponential declined discount rate.Partricia K. Smith (1995) pointed out that the level of satisfaction for individual has different "time preference"[2]. Similar to the discount rate of the economics, the utility also has a discount rate -- utility discountfactor.
Alan R. Rogers (1994) show that affected by the nature selection, different individuals have different utility coefficient of time preference. Subject in the western study of a lot of time preference of literature, but the conclusions verifies.Alan R. Rogers (1994) and Patricia K. Smith et al (2005) has been proved that the utility discount factors of men and women are significantly different. The utility discount factor of men is higher than women, which means that men pay more attention to long-run benefits. However, Sunghan Kim et al. (2002) found that the sex of children has no effect on their time preference coefficient; on the contrary, the age and race are significantly affecting the discount factor. The domestic researches on time preference concentrate on the consumption behavior, investment behavior, and the design of financial product[3]. This article use CHFS data in 2011 to explore the factors affecting Chinese household financial decision-making mode, and discovery some new founding.
III. Theoretical Assumption
(I) The effect of income on financial decision-making right
Foreign empirical literature [4]shows income is the important factor affecting the household decision-making right between the husband and wife. NavaAshraf (2009) adopted the daily wages to measure the income gap of the both sides of husband and wife, and found that the parties that have higher average daily wages would have higher decision-making power. Some literature used the non-labor income to measure the bargaining power between the couples[5], similarly finding that the non-labor income has a significant influence on bargaining power.In short, many empirical literatures achieve that the income is the important factor affecting the household decision-making right between the husband and wife.
In theory, the separate spheres models are built to conduct the relationship of income and financial decision-making right. In the separate spheres models, the husband and wife use Nash bargaining to resolve differences, but the deal in the marriage is inefficient and non-cooperative equilibrium.In non-cooperative equilibrium, given the partners’ behavior,the other party spontaneously provides his own discretionary economic resources, and the nondiscretionary economic researches falling in his “hemisphere”, and chooses the utility-maximizationbehavior. By the control of economic resources, select the utility maximization behavior.The noncooperation marriage may be better than the divorce situation for bother parties of couples. When they fail to reach an agreement, divorce may be eventually threat to spouse, but because of the consumption related goods and services, the interests of both sides can get marriage may be repeated non-cooperative bargaining threat.Ball bargaining produces household demand, in some cases, this demand is nonrelated to who obtain income after divorce, but is related to who obtain and control the income before the divorce.
The Neumann-Morgenstern utility function is established: and . and represent the discretionary economic resources of husband and wife, which directly indicating their financial decision-making right. represent the nondiscretionary economic resources of husband and wife. We suppose that both of them are not altruist, and both are provided voluntarily. Simultaneously, we define “threat point” as the utility achieved by the game parties after the marriage bargaining fails. and represent the divorce threat function of husband and wife. represent the price of related goods and services and we suppose the price of and both equal 1. represent the income of husband and wife. Nash equilibrium solution is obtained when reach to the maximization, which is shown as figure 1.