Private Information in the Family

• Department of Economics

Michele Tertilt, Mannheim University, will present her paper 'Private Information in the Family'

While private information has been shown to shape household decisions, standard family models typically assume partners share the same information.

A mechanism-design framework is used to model household decision-making as an optimal contracting problem with private information, showing that consumption shares should rise with income shares. This prediction is tested by combining new survey modules on financial knowledge and consumption in the Dutch LISS panel with longitudinal data on 931 couples (2007–2021). Substantial information asymmetries are documented: in about 40% of couples, at least one partner reports imperfect knowledge about their respective income.

Consistent with the model, a positive income–consumption gradient emerges only among imperfectly informed couples, indicating that private information shapes household allocation. By contrast, standard measures of commitment do not affect this gradient once private information is accounted for.

Co-authors: Suzanne Bellue, Matthias Doepke