Commitment and the Dynamics of Household Labor Supply

TL;DR

This paper develops a lifecycle household model to analyze how different commitment levels between partners influence household labor supply, using empirical tests to distinguish commitment types based on news effects.

Contribution

It introduces a novel test to identify household commitment types and applies it to real data, revealing limited commitment as the prevalent form.

Findings

Rejects full and no commitment models

Finds strong evidence for limited commitment

Demonstrates heterogeneity in commitment levels

Abstract

The extent to which individuals commit to their partner for life has important implications. This paper develops a lifecycle collective model of the household, through which it characterizes behavior in three prominent alternative types of commitment: full, limited, and no commitment. We propose a test that distinguishes between all three types based on how contemporaneous and historical news affect household behavior. Our test permits heterogeneity in the degree of commitment across households. Using recent data from the Panel Study of Income Dynamics, we reject full and no commitment, while we find strong evidence for limited commitment.