Roberta Ziparo (AMSE)

Investment and Reputation within the household

Abstract

This paper studies the dynamic relationship between intra-household specialization, resource allocation and women's investment decisions. We consider household investments delegated to the wife in settings where wives that are perceived to be savvy investors by their husbands are entrusted with a larger share of the budget. We show, first theoretically, then empirically in a series of experiments with couples in Malawi, that a signaling game can result, in which wives, in order to maintain control over a larger share of the budget, (a) under-invest in novel goods with unknown returns; and (b) knowingly over-use low-return goods in order to hide bad purchase decisions, we call this the intra-household sunk cost effect.