Setting the dowry optimally to extract the full surplus: a contract theory perspective

Batabyal, Amitrajeet and Beladi, Hamid (2013): Setting the dowry optimally to extract the full surplus: a contract theory perspective. Published in: Economics Bulletin , Vol. 33, (13 August 2013): pp. 2034-2041.

Abstract

In this note, we study the contractual interaction between the fathers of a prospective groom and a prospective bride in a traditional society. Based on his valuation of the groom, the bride’s father approaches the groom’s father with an offer of marriage. The groom’s father does not know the quality of the bride. Even so, he holds superior bargaining power. He uses this power to select the dowry optimally and this selection leads to a marriage between his son and the bride. We use a simple model and show that if the bride’s father’s risk aversion increases in his valuation of the groom then despite being asymmetrically informed, the groom’s father can implement the first-best dowry contract and extract all the surplus from the bride’s father.

• Item Type: MPRA Paper
• Language: English
• Keywords: Contract, Dowry, Randomization, Risk Aversion, Uncertainty
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; J - Labor and Demographic Economics > J8 - Labor Standards: National and International > J81 - Working Conditions

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