Intrahousehold Preference Heterogeneity, Commitment, and Strategic Savings: Theory and Evidence from Kenya,” Working Paper

This paper develops and tests a model of household bargaining in which heterogeneity in discount factors drives inefficient savings behavior. The model highlights that when discount factors differ and individuals cannot commit intertemporally, the availability of a “private ” sav-ings technology (a device that is only accessible by a single owner) may incite individuals to take costly strategic savings action in order to manipulate the time path of consumption. To test this model and the efficient alternative, we designed and implemented a field experiment where married couples in rural Kenya were given the opportunity to open joint and individual bank accounts at randomly assigned interest rates. The behavior of individuals in the experiment is inconsistent with ex-ante Pareto efficiency and a variety of alternative models of intrahousehold resource allocation, but consistent with the proposed model of strategic savings. Savings misal-location due to strategic behavior is substantial: couples who are poorly matched on discount factors forgo at least 52 percent more in interest earnings when compared to their well matched peers. ∗I thank Abhijit Banerjee, Esther Duflo, and Tavneet Suri for invaluable advice and feedback at all stages o