A Principal-Agent Analysis of the Family: Implications for the Welfare State

The principal-agent literature has focussed on situations where both principal and agent are assumed to be capable of defining and defending their own interests. The principal-agent literature has thus ignored an important set of cases where the principal is incapable of acting on her own behalf, and so is assigned an agent by law or custom. Such cases account for around 40% of humanity and for a similarly substantial proportion of all principal-agent interactions. This paper applies principal-agent analysis to one such case, the family, where the child is taken as the principal and the parent is her agent. The principal-agent problem within families creates a prima facie case for state interventions to protect child-principals, since some parents will shirk and the consequences of such shirking may be serious and irreversible damage to the child-principal, who cannot defend herself. The principal-agent perspective on the family sheds new light on two old debates: about whether state welfare services should be provided in cash or in kind, and about user fees for social services involving children.