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The Retirement-Consumption Puzzle: A Marital Bargaining Approach

  • Shelly Lundberg
  • Richard Startz
  • Steven Stillman

Evidence from several countries reveals a substantial drop in household consumption around the age of retirement that is difficult to explain with life-cycle models. Using food consumption data from more than 550 households from the Panel Study of Income Dynamics for the years 1979-1986 and 1989-1992, the authors find that married couple households decrease their expenditures on food consumed both at home and away from home by about 8 percent following the retirement of the male household head. This result is robust for several alternative definitions of retirement. No significant decrease in consumption is found for single households, either in a sample of males or a pooled sample of single males and females. These results are consistent with a model of marital bargaining in which wives prefer to save more than their husbands to support an expected longer retirement period, and relative control over household decisions is affected by control over market income.

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Paper provided by RAND Corporation Publications Department in its series Working Papers with number 01-04.

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Length: 42 pages
Date of creation: Feb 2001
Date of revision:
Handle: RePEc:ran:wpaper:01-04
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  1. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
  2. Martin Browning & Thomas F. Crossley, 2000. "The Life Cycle Model of Consumption and Saving," Social and Economic Dimensions of an Aging Population Research Papers 28, McMaster University.
  3. Saku Aura, 2002. "Does the Balance of Power Within a Family Matter? The Case of the Retirement Equity Act," CESifo Working Paper Series 734, CESifo Group Munich.
  4. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-67, June.
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  6. Hamermesh, Daniel S, 1984. "Consumption during Retirement: The Missing Link in the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 1-7, February.
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  8. McElroy, Marjorie B & Horney, Mary Jean, 1981. "Nash-Bargained Household Decisions: Toward a Generalization of the Theory of Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(2), pages 333-49, June.
  9. Shelly Lundberg & Robert A. Pollak, 2001. "Efficiency in Marriage," NBER Working Papers 8642, National Bureau of Economic Research, Inc.
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  11. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February.
  12. Lundberg, Shelly & Pollak, Robert A, 1993. "Separate Spheres Bargaining and the Marriage Market," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 988-1010, December.
  13. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  14. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  15. Euwals, Rob & Börsch-Supan, Axel H. & Eymann, Angelika, 2000. "The Saving Behaviour of Two Person Households: Evidence from Dutch Panel Data," IZA Discussion Papers 238, Institute for the Study of Labor (IZA).
  16. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
  17. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  18. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  19. A. L. Robb & J. B. Burbidge, 1989. "Consumption, Income, and Retirement," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 522-42, August.
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