Building the Family Nest: A Collective Household Model with Competing Pre-Marital Investments and Spousal Matching

Abstract

We develop a model of the household in which spousal incomes are determined by pre-marital investments, the marriage market is characterized by assortative spousal matching, and endogenously-determined sharing rules form the basis of intra-household allocations. By incorporating pre-marital investments and spousal matching into the collective household model, we are able to (a) establish the welfare implications of the collective household model for pre-marital choices and spousal matching and (b) identify the fundamental determinants of endogenously-determined and maritally sustainable intra-marital sharing rules. In particular, we find that all sharing rules along the assortative order support unconditionally efficient outcomes where both pre-marital investment and intra-household allocations are efficient. We also show that, for each couple, the marriage market generates a unique and maritally sustainable sharing rule that is a function of the distribution of the pre-marital endowments and the sex ratios in the marriage market.