Economic models of retirement behavior typically examine the optimal behavior of a single individual who faces alternative streams of utility over the remainder of his or her life. In general, however, retirees are not isolated individuals; the labor supply and consumption decisions of elderly couples will be the outcome of some joint decision-making process that reflects the preferences and interests of both husband and wife. Many of the important issues in retirement behavior involve circumstances in which there may be a conflict between the needs and objectives of married men and women, including the causes of extensive poverty among elderly widows and the possible consequences of individual control over Social Security assets. An appropriate framework for analyses of these and other issues must allow for the independent preferences of husbands and wives and for the dissolution of a marriage through death or divorce. In recent years, game-theoretic models of family decision-making, including cooperative and non-cooperative bargaining models, have been developed and have received considerable empirical support, but have had little influence on the study of retirement. The purpose of this project is to develop some simple models of marital bargaining with applications to savings and retirement decisions, and to conduct some exploratory empirical analysis of the marital context of these decisions using the PSID. Preliminary work shows that bargaining models may help to explain some empirical puzzles, such as the failure of consumption profiles to correspond to the individual life-cycle model and excessive retirement at age 65. The bargaining framework also suggests that household characteristics not usually included in savings and retirement models, such as marital status, the relative ages of husbands and wives, and the presence of adult children will affect behavior. These extensions to standard empirical analyses of retirement can be used to test for the relevance of bargaining issues in this important area, and will indicate whether further development of a bargaining approach to the behavior of elderly couples is warranted.
