Dynamic Bargaining in Households (with an Application to Bangladesh)

29 Pages Posted: 6 Mar 2011

See all articles by Ethan A. Ligon

Ethan A. Ligon

University of California, Berkeley; Giannini Foundation

Date Written: March 4, 2011

Abstract

Much recent empirical work on intra-household allocation uses the axiomatic Nash Bargaining model to make predictions about how the distribution of consumption within the household will respond to individuals' income shocks. However, one of the basic axioms underlying this approach is that allocations will be Pareto optimal, so forward-looking, risk adverse household members ought to be expected to smooth away any such response to income shocks-Pareto optimality seems to be too strong in a dynamic setting. In this paper we use explicitly dynamic framework and replace the axiom of Pareto optimality with a weaker notion of efficiency. We give a simple algorithm for computing allocations, and construct an extended example, meant to model the effects of Grameen Bank lending on intra-household allocation in Bangladesh. The model resolves a puzzle in the literature, namely, it predicts that women borrowers will often voluntarily surrender control ("pipeline") their loans to their husbands.

Suggested Citation

Ligon, Ethan A., Dynamic Bargaining in Households (with an Application to Bangladesh) (March 4, 2011). Available at SSRN: https://ssrn.com/abstract=1776810 or http://dx.doi.org/10.2139/ssrn.1776810

Ethan A. Ligon (Contact Author)

University of California, Berkeley ( email )

207 Giannini Hall #3310
Berkeley, CA 94720-3310
United States

Giannini Foundation

UC Davis
Davis, CA 95616
United States

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