The Good Wife? Reputation Dynamics and Financial Decision-Making Inside the Household

We study the dynamic relationship between women's intra-household reputation and investment decisions. We consider household investments delegated to the wife in settings where wives perceived to be savvy investors by their husbands are entrusted with a larger budget share. We show, first theoretically, then empirically in a series of experiments in Malawi, that a signaling game can result: to maintain control over a larger budget share, wives (a) under-invest in novel goods with unknown but high expected returns; and (b) knowingly over-use low-return goods in order to hide bad purchase decisions---we call this the intra-household sunk cost effect. These dynamics have important implications for women's well-being as well as for the design of poverty alleviation programs.