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Published in the Journal of Political Economy in 1989.

Download the Paper (1.9 MB, PDF file) - October 1, 1989 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
Gary Becker's ``Rotten Kid Theorem'' asserts that if all family members receive gifts of money income from a benevolent household member, then even if the household head does not precommit to an incentive plan for family members, it will be in the interest of selfish family members to maximize total family income. We show by examples that the Rotten Kid theorem is not true without assuming transferable utility. We find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a Rotten Kid Theorem. While restrictive, these conditions still allow one to apply the strong conclusions of the Rotten Kid Theorem in an interesting class of examples.

SUGGESTED CITATION:
Ted Bergstrom, "A Fresh Look at the Rotten Kid Theorem--And Other Household Mysteries" (October 1, 1989). Department of Economics, UCSB. Ted Bergstrom. Paper 1989A.
http://repositories.cdlib.org/ucsbecon/bergstrom/1989A