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Moral hazard in marriage: the use of domestic labor as an incentive device

Selma Walther

Review of Economics of the Household, 2017, vol. 15, issue 2, 357-382

Abstract: Abstract This paper argues that some women in developing countries use domestic labor as a tool to incentivize husbands. A theoretical model is derived based on the traditions of rural Malawi, where men often supplement farm income with wage labor. As wage labor is not observed by the wife, this creates moral hazard: husbands may not make enough effort to bring home wages. The model predicts that women overcome this by using domestic labor as an incentive device: they increase their domestic labor and reduce their leisure in response to good consumption outcomes, but only if they cannot rely on divorce threat as an alternative source of incentives. This prediction is confirmed using survey data from Malawi. Identification is based on the fact that Malawi’s kinship traditions exogenously determine women’s accessibility to divorce. Where divorce is not an option, women make inefficient labor choices in order to provide incentives.

Keywords: Moral hazard; Divorce; Domestic labor; Matrilineal (search for similar items in EconPapers)
JEL-codes: D13 D82 J12 J22 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:reveho:v:15:y:2017:i:2:d:10.1007_s11150-016-9347-8