A03: Market failures and family policies

The research program of the previous funding period made a large step forward in understanding the impact of specific frictions on the economic decision-making of families. The evolving research program for the next funding period builds on these important insights and is now centered around the different dimensions of family life that are affected by these frictions. These dimensions stretch from the labor market and career dynamics, over families dealing with the Covid-19 pandemic, to marriage, divorce, and fertility decisions. The common theme in the exploration of these topics will be how frictions affect economic behavior with a focus on families.

Families interact with market frictions in three important ways. First, family life may amplify existing frictions, such as labor search frictions, when multiple family members need to coordinate their labor market opportunities. Second, frictions that are particular to the family (such as limited commitment or asymmetric information in the family) will have effects on other parts of economic life like career decisions of spouses or savings behavior. Third, the family is also an important source of insurance so that it can mitigate market frictions (e.g., women entering the workforce in response to a husband’s job loss).

The proposed research program builds on the established strength of its members and will combine theoretical and applied work. As goals of the research program, we aim at developing positive theories and normative policy recommendations for several countries, among them Germany, Korea, Austria, the Netherlands, and the United States.