Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples
Pareto Efficiency is a core assumption of most models of household decision-making. We test this assumption using a new dataset covering the retirement saving contributions of over a million U.S. individuals. While a vast literature has failed to reject household efficiency in developed countries, we find evidence of widespread inefficiency in our setting: retirement contributions are not allocated to the account of the spouse with the highest employer match rate. This lack of coordination cannot be explained by inertia, auto-enrollment, or simple heuristics. Instead, we find that indicators of weaker marital commitment correlate with the incidence of inefficient allocations.
We are grateful to Joe Altonji, Orazio Attanasio, John Bailey Jones, James Choi, Stefano DellaVigna, Andrew Hertzberg, Tatiana Homonoff, Shelly Lundberg, Costas Meghir, Pierre-Carl Michaud, Paolina Medina, Alberto Rossi, Arthur Seibold, Dmitry Taubinsky and Alessandra Voena for very helpful discussions and to Jun-Davinci Choi, Rosa Kleinman, Elijah Olson and Aneesha Parvathaneni for excellent research assistance. The research reported herein was performed pursuant to grant RDR18000003 from the US Social SecurityAdministration (SSA) funded as part of the Retirement and Disability Research Consortium. The findings, interpretations, and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, the U.S. Department of the Treasury, any other agency of the Federal Government, or NBER. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof. We are grateful to the Yale Economics Tobin Center for Economic Policy for providing co-funding. This research was conducted while Goodman was an employee at the U.S. Department of the Treasury. Any taxpayer data used in this research was kept in a secured Treasury or IRS data repository, and all results have been reviewed to ensure that no confidential information is disclosed. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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