Marwa AlFakhri, Predoctoral Student, Sanford School of Public Policy at Duke, presents, “Out of Sight, but not Out of Mind: Information, Efficiency and the Extended Family”

The United States is undergoing major demographic changes including an increase in life expectancy and a rapidly growing aging population. These demographic shifts are expected to strain social assistance programs and families. While the extended family plays a significant role as a source of caregiving and financial support to its members, decision-making within the extended family is relatively understudied due to lack of adequate data. In this project, I employ rich data from the Panel Study of Income Dynamics (PSID) and extend economic household decision-making models to examine how extended families allocate resources. I find that families do not pool their resources or allocate them in an efficient manner, leaving welfare gains on the table. I then explore why efficiency may not prevail in extended families by examining information asymmetry. I present descriptive evidence for the existence and extent of information asymmetry in the family, and I find that families with better information allocate their resources more efficiently. These findings provide suggestive evidence that information asymmetry may hinder efficient resource allocations in the family.