This paper discusses a bargaining model on discrete choices of individual household based on two-agent qualitative choice model. The twoagent qualitative choice model describes discrete choices made through bargaining interactions between two agents. This paper presents a bargaining model of discrete choices on labor supply of husband and wife of households.
Contrary to self-employed workers, employees' hours of work tends to be assigned by employers. In the case where hours of work is restricted, the choices the agents make will not be continuous but discrete, i.e., binary choices of whether the agents work or not. This model explicitly demonstrates utility maximizing behavior of two interacting agents under such discrete constraint imposed on hours of work.
As structural equations, an income-leisure preference function of wife and that of husband are introduced in this paper. These functions have random coefficients, which represent taste differences among wives and husbands in population.
This paper focuses on labor supply decisions made by Japanese households that consist only one couple of wife and husband with children under fifteen years old.