The Good Wife? Reputation Dynamics and Financial Decision-Making Inside the Household

Date & Time Nov 30 2021 12:45 PM - 2:00 PM
Pascaline Dupaz
Audience Restricted to Princeton University

We study the dynamic relationship between intra-household specialization, resource allocation and women’s investment decisions. We consider public good investments delegated to the wife in settings where wives perceived to be savvy investors by their husbands are entrusted with a larger share of the budget. We show, first theoretically, then empirically through 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 fallacy. These dynamics matter for women’s well-being as well as for the design of poverty alleviation programs.