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Will the possibility of divorce discourage marriage-specific investment?

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  • Liu, Xuemei
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    Abstract

    Becker et al. (1977) argue that the possibility of divorce discourages the accumulation of marriage-specific capital. Their argument has been confirmed by empirical studies that assume labor supply and marriage-specific investment are negatively related. We argue that since it is possible for individuals to increase marriage-specific investment without changing labor supply simultaneously, the conventional approach using the change in labor supply to infer to the change in marriage-specific investment may lead to a biased conclusion. This paper incorporates dynamic and stochastic optimal control approach into a material-spiritual goods framework. The model disentangles marriage-specific investment form other marital effort, and demonstrates that only part of effort devoted to marriage is marriage-specific investment and only the individuals who have spiritual and emotional needs make marriage-specific investment. Marriage-specific investment is highest in marriages where individuals behave altruistically, lower in marriages where individuals behave selfishly, and zero in marriages where spiritual goods are not valued. The model also implies a result that is contrary to conventional wisdom: the possibility of divorce does not always discourage, and may even encourage, marriage-specific investment. Since the impact of the divorce risk on marriage-specific investment depends on three factors: time preference, the level of the risk and the correlation between the divorce risk and marriage-specific capital, it could be optimal for an individual to invest more under uncertainty than in the corresponding risk-free world if he or she can well understand and predict his or her partner's spiritual needs. The key factor in the decision process is the confidence in predicting the partner's spiritual needs.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 39 (2010)
    Issue (Month): 2 (April)
    Pages: 251-257

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    Handle: RePEc:eee:soceco:v:39:y:2010:i:2:p:251-257

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Marriage-specific investment Divorce Uncertainty;

    References

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    1. Peters, H Elizabeth, 1986. "Marriage and Divorce: Informational Constraints and Private Contracting," American Economic Review, American Economic Association, vol. 76(3), pages 437-54, June.
    2. Browning, M. & Chiappori, P.A., 1994. "Efficient Intra-Household allocations: A General Characterization and Empirical Tests," DELTA Working Papers 94-16, DELTA (Ecole normale supérieure).
    3. Parkman, Allen M, 1992. "Unilateral Divorce and the Labor-Force Participation Rate of Married Women, Revisited," American Economic Review, American Economic Association, vol. 82(3), pages 671-78, June.
    4. Becker, Gary S & Landes, Elisabeth M & Michael, Robert T, 1977. "An Economic Analysis of Marital Instability," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1141-87, December.
    5. Kooreman, P. & Kapteyn, A.J., 1990. "On the empirical implementation of some game theoretic models of household labor supply," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364364, Tilburg University.
    6. Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 991-1010, September.
    7. Gary S. Becker, 1974. "A Theory of Marriage: Part II," NBER Chapters, in: Marriage, Family, Human Capital, and Fertility, pages 11-26 National Bureau of Economic Research, Inc.
    8. Bruce, Neil & Waldman, Michael, 1990. "The Rotten-Kid Theorem Meets the Samaritan's Dilemma," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 155-65, February.
    9. Leora Friedberg, 1998. "Did Unilateral Divorce Raise Divorce Rates? Evidence from Panel Data," NBER Working Papers 6398, National Bureau of Economic Research, Inc.
    10. Bourguignon, F. & Chiappori, P-A., 1991. "Collective Models of Household Behaviour: An Introduction," DELTA Working Papers 91-29, DELTA (Ecole normale supérieure).
    11. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, October.
    12. Chiappori, Pierre-André & Fortin, Bernard & Lacroix, Guy, 2001. "Marriage Market, Divorce Legislation and Household Labor Supply," Cahiers de recherche 0103, Université Laval - Département d'économique.
    13. Johnson, William R & Skinner, Jonathan, 1986. "Labor Supply and Marital Separation," American Economic Review, American Economic Association, vol. 76(3), pages 455-69, June.
    14. Konrad, Kai A & Lommerud, Kjell Erik, 1995. " Family Policy with Non-cooperative Families," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 581-601, December.
    15. Allen, Douglas W, 1992. "Marriage and Divorce: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 679-85, June.
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