A transaction cost approach to outsourcing by households

Liat Raz-Yurovich, Hebrew University of Jerusalem

Important demographic trends (e.g., sub replacement fertility, late marriage) reflect, in part, the incompatibility of women’s family and paid work roles. The outsourcing of childcare and housework to market and state service providers offers a strategy for reconciling work-family conflicts. Thus, it is important to understand the factors that facilitate or impede outsourcing by households. By referring to the household as an organizational unit, I use the transaction cost approach (TCA) of the organizational economists to discuss these factors. My analysis demonstrates that 21st-century households mainly "make-and-buy", and that the frequency, specificity and uncertainty level of the transaction, as well as normative and social beliefs, can facilitate or impede the household's decision to outsource. Monetary considerations, preferences, and government policies might moderate the effect of the transaction cost on this decision. My analysis further demonstrates that gender is an important factor, because transaction costs are not necessarily distributed equitably within households.