Marriage, markets, and money: a Coasian theory of household formation
K Burdett, M Dong, L Sun, R Wright
International Economic Review | John Wiley & Sons | Published : 2016
This article integrates search-based models of marriage and money. We think about households as organizations, the way Coase thinks about firms, as alternatives to markets that become more attractive when transactions costs increase. In the model, individuals consume market- and home-produced goods, and home production is facilitated by marriage. Market frictions, including taxes, search, and bargaining problems, increase the marriage propensity. The inflation tax encourages marriage because being single is cash intensive. Microdata confirm singles use cash more than married people. We use macrodata over many countries to investigate how marriage responds to inflation, taxation, and other va..View full abstract
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Awarded by Australian Research Council's DECRA scheme
We thank Linda Wong, Scott Schuh, Michelle Tertilt, Francesco Lippi, Alexander Wolman, Andrew Hertzberg, Hal Cole, and two referees for insightful comments. We also thank conference or seminar participants at Penn, Princeton, Wisconsin, NYU, Toronto, Aarhus, Essex, the Minneapolis and Chicago Feds, the SED, and the European Search and Matching Conference in Cyprus. Wright thanks the NSF and the Ray Zemon Chair in Liquid Assets at the Wisconsin School of Business for support. Dong acknowledges financial support under the Australian Research Council's DECRA scheme (project number DE120102589). The views expressed here are those of the authors and not the Federal Reserve System or any Federal Reserve Bank.