Consider a household similar to that of exercise 5, except this households utility takes the following form:

Question:

Consider a household similar to that of exercise 5, except this household’s utility takes the following form:

where wm, ww are, respectively, the man’s income and the woman’s income; w = wm + ww, and y and x are, respectively, the amount of resources invested in the boy and in the girl. Let (wm/w); (ww/w) denote the within-household bargaining power, with respect to the household’s income.

a. Suppose the man is the only source of labor income in this household, and assume that he earns wm = 1,000 taka per month. Compute this household’s optimal decision.

b. Assume that the woman can work in a project financed by a microfinance institution, and that as a result she generates an additional amount ww = 1,000 taka per month. What would be the optimal strategy for the household in this case?

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