Non-contractibilities in the household : theory and evidence
I develop and test models of household behavior where household members behave non-cooperatively. I view marriage as a contract between husband and wife. This approach stresses the importance of household members to make enforceable contracts or agreements with each other. The reason why actions taken by individuals within the household are non-contractible is because they are non-verifiable to third parties outside of the household. This approach has two major appeals. First, whenever non-contractible choices are subject to renegotiation, dynamic inefficiencies arise. This helps provide a theoretical underpinning to a growing body of empirical evidence that suggests households do not always make efficient decisions. Second, thinking of marriage as a contract leaves scope for individual household members to have different preferences and face different constraints. As households renegotiate over the division of the surplus from marriage, individual threat points and outside options still play a role in determining the allocation of resources within the household. I apply this framework to three settings - investing into fertility, investing into child quality, and decisions to marry and divorce.