Intra-Household Resource Management Structure and Income-Hiding under Incomplete Information

There is evidence that some multi-person households may withhold income transfers, such as bonuses, gifts, and cash transfers, from other members of the household (Ashraf (2009); Vogler and Pahl, (1994)). In this paper, I show that the incentives to hide income under incomplete information regarding the quantity of resources available to the household differ for three different household resource management structures. I illustrate this with a simple two-stage game. In the first stage, one spouse receives a monetary transfer that is unobserved by her spouse, and she must decide whether to reveal or to hide it. In the second stage, spouses bargain over the allocation of resources between a household good and private expenditure. The three models differ in the resource allocation mechanism that takes place in second stage of the game: housekeeping allowance, independent management, and joint management. Results indicate that when one spouse receives a monetary transfer that is unobservable to her spouse, hiding is more likely to occur in households with a housekeeping allowance contract, compared to independent or joint management. In joint management households, however, a spouse may hide in equilibrium if the change in bargaining power associated with revealing the transfer is not significant enough to compensate for the loss in discretionary expenditure.