Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples

From  Taha Choukhmane, Lucas Goodman and Cormac O'Dea

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.

 

Taha Choukhmane

Taha Choukhmane

Class of 1947 Career Development Assistant Professor

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"Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples."

Choukhmane, Taha, Lucas Goodman, and Cormac O’Dea, MIT Sloan Working Paper 6139-20. Cambridge, MA: MIT Sloan School of Management, April 2023. NBER Working Paper 31195.

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