The Internal Organization of the Family: Economic Analysis and Psychological Advice

SUMMARY This article shows that therapeutic advice for behavior within the family is to create a functioning property‐rights system and to emulate voluntary transactions within a competitive economic market. The optimal organization of the family requires that relations are structured so that non‐cooperative game playing is minimized and transaction costs are reduced. The article employs economic analysis to explain why ‘setting limits’ is preferred to punishment (Pigouvian taxes). It also explains why there is conflict between children and their parents even when the parent's utility is the present discounted value of the child's utility function.