Working Paper No. 03-01

The Collective Household Model with Competing Pre-Marital Investments
Murat F. Iyigun and Randall P. Walsh
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 maritally sustainable in this model. We find that the unconditinally efficient outcomes, in which both pre-marital investments and intra-household allocations are efficient, can be supported by intra-marital 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. The outcome under this sharing rule is unconditionally 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 wives' threat point-at least for couples in the lowest assortative order-emerges as the maritally sustainable outcome.

JEL classification: C78; D61; D70
Keywords: the collective model; marriage; bargaining; household labor supply

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