The Collective Household Model with Competing Pre-Marital Investments

29 Pages Posted: 9 Apr 2003

See all articles by Murat Iyigun

Murat Iyigun

University of Colorado at Boulder - Department of Economics; Harvard University - Center for International Development (CID); IZA Institute of Labor Economics

Randall P. Walsh

University of Colorado at Boulder - Department of Economics

Date Written: January 2003

Abstract

We develop a "collective" model of the household in which spousal incomes are determined by pre-marital investments, the marriage market is characterized by assortative matching, and a sharing rule forms the basis of intra-household allocations. We identify the properties of the sharing rules that are sustainable in this model. We find that the unconditionally efficient outcomes, in which both pre-marital investments and intra-household allocations are efficient, can be supported by sharing rules that are consistent with the collective approach. In particular, when marriage does not generate a surplus, we show that only one sharing rule, which is purely a function of the gender wage gap, is sustainable in the marriage market. This sharing rule is Pareto efficient. When marriage generates a surplus and the numbers and distributions of men and women in the marriage market are identical, we demonstrate that there exists a continuum of maritally sustainable sharing rules. Associated with each of these sharing rules is a continuum of equilibria only one of which is unconditionally efficient. In contrast, when marriage involves a surplus and the numbers and distributions of men and women in the marriage market differ, the sharing rule which supports the unconditionally efficient equilibrium associated with the threat point of the more abundant gender - at least for couples in the lowest assortative order - emerges as the maritally sustainable outcome.

Keywords: Marriage, Sorting, Bargaining, Household Labor Supply

JEL Classification: C78, D61, D70

Suggested Citation

Iyigun, Murat F. and Walsh, Randall P., The Collective Household Model with Competing Pre-Marital Investments (January 2003). Available at SSRN: https://ssrn.com/abstract=374820 or http://dx.doi.org/10.2139/ssrn.374820

Murat F. Iyigun (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6653 (Phone)
303-492-8622 (Fax)

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Randall P. Walsh

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
303-492-4599 (Phone)
303-492-8622 (Fax)

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