Noncooperative decision making in the household: Evidence from Malawi

This paper proposes a novel test of productive efficiency in the household that also allows a test of noncooperative decision making. I extend the collective model (Chiappori 1988, 1997) to allow labor choices to affect future bargaining power by raising the value of outside options. Even if household consumption sharing is efficient, labor choices are no longer efficient. Using data on Malawi, where there is predetermined variation in land rights that determine outside options in marriage, I show that individuals spend more time on agricultural labor and less time on wage labor when household land is theirs. They also have lower overall income and consumption. The results are inconsistent with the fully efficient collective model but consistent with a noncooperative model with limited commitment, where individuals allocate their labor supply to maximize future bargaining power. Limited commitment can lead to inefficient allocations that reduce household welfare.