The Collective Household Model with Competing Pre-Marital Investments

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 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.