Marriage, Markets, and Money: A Coasian Theory of Household Formation
Randall Wright, Consultant
May 2016 | International Economic Review, 57(2): 337-368 | With Kenneth Burdett, Mei Dong, and Ling Sun
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 variables.