The valuation of household production: divorce, wrongful injury and death litigation

American Journal of Economics and Sociology, The,  April, 1994  by Charles C. Fischer

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The questions included in the survey pertain to the main issues of concern raised in the literature regarding sum-of-the services, market-alternative replacement cost. The survey instrument focused on this particular variant of replacement cost since other methodologies have had little application in forensic economics (as discussed above). What follows is a brief explanation of the issues explored (also see Fischer, 1993) and a summary of findings.

Concurrently Performed Services. In household production the performance of distinct tasks may overlap. For example, a household producer may do the laundry, take care of children and cook dinner all at the same time. This raises the question of what is the appropriate rate of renumeration for such overlapping functions, each one of which might command a substantially different wage in the market (see Douglass et al., 1990).

Two basic approaches have been advanced in the literature for treating this problem. One is to apply a premium to the wage for the main activity in question. For example, Fischer argues that "We would expect that if a restaurant hired a cook in the market who performed several overlapping distinct activities (e.g., also washed dishes and bussed tables), a premium wage would have to be paid above a basic cook's wage" (1987: 221). However, this raises other problems: (1) there may be no analogous market data to suggest the proper markup, and (2) there may not be an objective way to determine which activity is the primary activity among the overlapping tasks. Regarding the latter, Douglass et al. (1990) argue that child care is often undervalued since the tendency is to assume that it is secondary to such tasks as cleaning and cooking. This may seem backwards to those who believe that child care is really the primary activity of home production.

A second approach for accounting for concurrently performed services is to decouple and value them separately. This also raises thorny implementation problems. How do we assign time worked to each service (Ireland and Ward, 1991; Ireland, 1991)? This allocation problem is exacerbated when the activities in question contain a leisure element (e.g., playing with your children, baking or home gardening) and thus psychic income is one of the joint outputs (Quah, 1986; Berk and Berk, 1979; Dulaney et al., 1992).

These complications, naturally, can be dispensed with by valuing only primary activity. Larimore (1991) argues that approaches aimed at accounting for concurrently performed services (wage premia or decoupling) lead to "padded" estimates. Others aver that ignoring the issue leads to the undervaluation of household production (e.g., Douglass et al., 1990).

While the debate continues in the literature, of interest here is how practitioners resolve the problem. Our survey data indicate that 95% (139) of the respondents do not apply a wage premium to concurrently performed services, but that 19% (28) believe it is appropriate do so. Of these 28 respondents, however, only 7 (5%) actually do apply a wage premium. Further, while 66% (97) do not decouple such services, 42% (62) indicated that decoupling is appropriate. Of this latter group, only 49 (34%) actually decoupled services. Thus, for concurrently performed services we may conclude that: (1) the majority do not value them differently than individually performed services, (2) among those supportive of valuing concurrently performed services, de-coupling is preferred to wage premia, and (3) as indicated by the last column of Table 1, there is a sizeable gap between beliefs and practice (hereinafter referred to as a belief-practice gap, discussed below).