Efficiency in Marriage

Economists usually assume that bargaining in marriage leads to efficient outcomes. The most convincing rationale for this assumption is the belief that efficient allocations are likely to emerge from repeated interactions in stationary environments, and that marriage provides such an environment. This paper argues that when a current decision affects future bargaining power, inefficient outcomes are plausible. If the spouses could make binding commitments–in effect, commitments to refrain from exploiting the future bargaining advantage–then the inefficiency would disappear. But spouses seldom can make binding commitments regarding allocation within marriage.