Mine, your or ours? : the efficiency of household investment decisions : an experimental approach

Abstract

The family is a universal and enduring institution that forms the basis of many economic decisions. Is decision making within the family efficient? The empirical literature on this issue is inconclusive to date, hence this paper uses a quasi-field experiment to examine this question. The experimental analysis involved real-time observations of individual investment decisions made by three hundred families in rural South India. Participants' control over family income was varied through how they shared earnings from their investment decisions with their spouse, and also through the form of payment. Information was varied through what spouses were told about participants' investments options and actual choices, once the decisions were made. We found direct evidence of inefficiency in investment decisions. Both for men and women, investment efficiency was very sensitive to the control they wielded control over family income generated. However, the nature of information their spouse received ex-post had little impact. Strikingly, even when there was no tradeoff between maximizing household and private income, about a third of the men in the sample undercut their own private income so as to narrow the income gap with their wives. In all other decisions too, these men were less inclined to maximize household income, and so were their wives. While women did care about control over family income, it was the absolute income, rather than income relative to their husbands that seemed to matter. The findings suggest that family decisions are a mixture of cooperation and conflict, with members willing to sacrifice some efficiency for control and power