Bargaining over Risk: The Impact of Bargaining Power on the Riskiness of Household Portfolios

Arna Vardardottir, Stockholm School of Economics
Tomas Thörnqvist, Stockholm School of Economics

This paper investigates the internal financial decision making process of households, employing comprehensive disaggregated panel data covering the entire Swedish population over seven years. Previous literature has shown that women exhibit higher degrees of risk aversion as compared to men and hold therefore less risky and better diversified portfolios. After replicating this result for single individuals in our data we proceed to show that the distribution of bargaining power among spouses affects the composition of household portfolios: as the married woman's bargaining power increases the riskiness of the household portfolio decreases and the diversification of the portfolio increases. In order to overcome potential endogeneity problems we utilize a source of exogenous variation as an instrument for bargaining power.