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Working Paper No. 04-08

A Collective Household Model with Choice-Dependent Sharing Rules
Murat Iyigun
August 2004

ABSTRACT

This paper presents a collective household model in which there are marital gains to assortative spousal matching, individuals face a labor-leisure choice and intra-marital allocations are determined by an endogenous sharing rule that is driven by actual wage earnings. The latter two features of the model introduce the potential for inefficiently high levels of labor supply because spouses recognize that changes in their labor supply would influence not only total household income but their respective shares in intra-household allocations. Nonetheless, when sex ratios are imbalanced or external distribution factors are not gender neutral, competition among potential spouses in the large marriage markets helps to generate maritally sustainable Pareto efficient levels of labor supply and intra-household allocations. In such cases, the sharing rule that supports the maritally sustainable and Pareto efficient equilibrium outcome is also unique for each couple along the assortative order.

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

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