Bargaining Power within the Family in South Korea

In this paper we consider net transfers to parents from adult children and net transfers from other parents to adult children in Korea. In doing so, we extend the literature on interfamily transfers in several ways. First, for a given couple, both sets of parents enter the optimization problem. Second, we develop and estimate nonlinear econometricmodels where the amount of transfers to the husband’s (wife’s) parents is assumed to depend on the couple’s income, the husband’s parents’ income, the wife’s parent’s income, and the bargaining power of husband (wife) within the family. Further, we argue that it is plausible that each spouse cares more about their parents than their in-laws, and thus such transfers are a form of semi-private consumption. Moreover, such transfers are economically important. Thus we also extend the literature by being able to observe bargaining over semi-private consumption that is important economically. We consider two models for these two-way transfers. The first model allows for bargaining between husband and wife, and between each spouse and their parents. We first assume that the couple is our topic in the sense that they do not consider potential transfers from parents when dividing their household income. The second model is a dynastic collective model involving the couple and both sets of parents where the couple is forward looking. We estimate these models on panel data from South Korea (2001–2005) and find that the data supports the first model but not the second. Further, we obtain relatively precise estimates of bargaining power parameters and find that we cannot reject equal bargaining power between husbands and wives.