| Determinants and Consequences of Bargaining Power in Households |
|
|
|
WP#2006-13 AbstractA growing literature offers indirect evidence that the distribution of bargaining power within a household influences decisions made by the household. These results undermine the notion that a household can be treated as a "unitary" decision maker. The indirect evidence links household outcomes to variables that are assumed to influence the distribution of bargaining power within the household. In this paper, we have data on whether a husband or wife in the Health and Retirement Study "has the final say" when making major decisions in a household. We use this variable to analyze determinants and some consequences of bargaining power. Our analysis overcomes endogeneity problems arising in many earlier studies and constitutes the missing link confirming the importance of household bargaining models. We find that decision-making power depends on plausible variables within the household and also influences important household outcomes, and moreover that the second set of results is much stronger than the first set. While current and lifetime earnings significantly affect decision-making power, the effects are moderate. On the other hand, decision-making power has important effects on financial decisions like stock market investment and total wealth accumulation and may help explain, for example, the relatively high poverty rate among widows. Thus, our results suggest that more research into the determination of bargaining power is needed, and that household bargaining has major effects on the welfare of household members. For executive summary in PDF For full paper in PDF Leora Friedberg is a professor of economics at the University of Virginia. Anthony Webb is a research economist at the Center for Retirement Research at Boston College. The findings and conclusions are solely those of the authors and do not represent the views of the University of Virginia or Boston College. We would like to thank Federico Ciliberto, Maxim Engers, John Pepper, and especially Steven Stern, and participants of workshops at the University of Virginia, the Society of Labor Economics, Harvard University, and UNC-Greensboro for their extremely helpful comments, and Francesca Golub-Sass, Stella Lee, and especially Jonathan King for excellent research assistance. Any remaining errors are our own. |