Working Paper: NBER ID: w8642
Authors: Shelly Lundberg; Robert A. Pollak
Abstract: Economists usually assume that bargaining in marriage leads to efficient outcomes. The most convincing rationale for this assumption is the belief that efficient allocations are likely to emerge from repeated interactions in stationary environments, and that marriage provides such an environment. This paper argues that when a current decision affects future bargaining power, inefficient outcomes are plausible. If the spouses could make binding commitments -- in effect, commitments to refrain from exploiting the future bargaining advantage -- then the inefficiency would disappear. But spouses seldom can make binding commitments regarding allocation within marriage. To investigate the efficiency of bargaining within marriage when choices affect future bargaining power, we consider the location decisions of two-earner couples. These location decisions are transparent and analytically tractable examples of choices likely to affect future bargaining power, but the logic of our analysis applies to many other decisions. For example, decisions about education, fertility, and labor force participation are also potential sources of inefficiency.
Keywords: No keywords provided
JEL Codes: D1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decisions made by spouses (J12) | inefficient outcomes (D61) |
| binding commitments (L14) | efficiency in dynamic marital bargaining (C79) |
| location decisions (R32) | future bargaining power (J52) |
| location decisions (R32) | inefficient outcomes (D61) |
| inability to make binding agreements (D86) | potential inefficiencies in marital decisions (J12) |