Weilong Zhang (Faculty of Economics)
Risk Preferences and Portfolio Choice: An Intra-household Perspective
We quantify how bargaining power is distributed when spouses make portfolio decisions together. We build a model in which each spouse has their own risk preference and must bargain with each other to make asset allocation decisions for the household. By structurally estimating the model using representative sample from Australia and Germany, we find a significant gender gap in household bargaining power: in Australia, the husband’s risk preference matters 44% more for the average household’s asset allocation than the wife’s; in Germany, the husband’s risk preference is twice as important as the wife’s. These gaps in bargaining power are partially explained by gender differences in income and employment status, but they are also due to gender effects. We provide further evidence that links the distribution of bargaining power to views on gender norms.
The Gender Gap in Household Bargaining Power: A Revealed-Choice Approach
When members of the same household have different risk preferences, whose preference matters more for investment decisions and why? We propose an intrahousehold model that aggregates individual preferences at the household level. This allows us to back out the distribution and determinants of bargaining power from household portfolio choice. We structurally estimate the model, analyze the determinants of bargaining power, and find a significant gender gap in bargaining power. While the gap is partially explained by gender differences in individual characteristics such as income and employment, it is also due to gender effects. These patterns hold broadly across Australia, Germany, and the US. We further link the distribution of bargaining power to perceived gender norms in the cross-section of households.
