Marriage and Consumption Insurance: What’s Love Got to do With It?
AbstractThis paper explores the role of marriage when markets are incomplete so that individuals cannot diversify their idiosyncratic labor income risk. Ceteris paribus, an individual would prefer to marry a “hedge“ (i.e. a spouse whose income is negatively correlated with her own) as it raises her expected utility. However, the existence of love complicates the picture: while marrying a hedge is important, an individual may not do so if she finds someone with whom she shares a great deal of love. Is love more important to a lasting marriage than economic compatibility? To answer this question, I develop a simple model where rational individuals meet, enjoy the economic and non-pecuniary benefits of marriage (i.e. love), and then must decide whether to remain married or divorce.The model predicts that if love is persistent and the resolution of uncertainty to agents’ income is early, then those who in fact married hedges (and for good reason) are the ones most likely to be caught short with too little love in order to save a marriage in the event of an adverse shock. Consequently, under these conditions individuals who are good hedges for one another are more likely to marry one another, although once married, they will be more likely to divorce.In contast, if love is temporary (in the sense of reverting to a common mean) and the resolution of uncertainty to agents’ income is predominantly later, then those who in fact marry hedges will in fact be less likely to subsequently divorce. Evidence is provided to distinguish which of these alternative scenarios is in support of these aspects of the decision to stay married. Additional hypotheses regarding the effect of differences in the expected means and volatilities of partners’ incomes are also derived from the theory and tested.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 507.
Date of creation: 2001
Date of revision:
Consumption Insurance; Marriage;
Other versions of this item:
- Gregory D. Hess, 2004. "Marriage and Consumption Insurance: What's Love Got to Do with It?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 290-318, April.
- Gregory D. Hess, 2001. "Marriage and consumption insurance: what's love got to do with it?," Working Paper 0104, Federal Reserve Bank of Cleveland.
- Gregory D. Hess, 2002. "Marriage and Consumption Insurance: What's Love Got To Do With It?," Claremont Colleges Working Papers 2002-15, Claremont Colleges.
- J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
- D1 - Microeconomics - - Household Behavior
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rosenzweig, Mark R & Stark, Oded, 1989.
"Consumption Smoothing, Migration, and Marriage: Evidence from Rural India,"
Journal of Political Economy,
University of Chicago Press, vol. 97(4), pages 905-26, August.
- Rosenzweig, Mark R. & Stark, Oded, 1987. "Consumption Smoothing, Migration and Marriage: Evidence from Rural India," Bulletins 7515, University of Minnesota, Economic Development Center.
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hess, G.D. & Shin, K., 1999.
"Risk Sharing of Disaggregate Macroeconomic and Idiosyncratic Shocks,"
9915, London School of Economics - Centre for Labour Economics.
- Gregory D. Hess & Kwanho Shin, 1999. "Risk sharing of disaggregate macroeconomic and idiosyncratic shocks," Working Paper 9915, Federal Reserve Bank of Cleveland.
- Hess, Gregory D. & Shin, Kwanho, 1998.
"Intranational business cycles in the United States,"
Journal of International Economics,
Elsevier, vol. 44(2), pages 289-313, April.
- Gregory D. Hess & Kwanho Shin, 1995. "Intranational business cycles in the United States," Research Working Paper 95-07, Federal Reserve Bank of Kansas City.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Laurence J. Kotlikoff & Avia Spivak, 1979.
"The Family as an Incomplete Annuities Market,"
UCLA Economics Working Papers
151, UCLA Department of Economics.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991.
"International real business cycles,"
146, Federal Reserve Bank of Minneapolis.
- Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
- Masao Ogaki & Qiang Zhang, 2000.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
Econometric Society World Congress 2000 Contributed Papers
1588, Econometric Society.
- Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-26, March.
- Masao Ogaki & Qiang Zhang, 1998. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Working Papers 98-02, Ohio State University, Department of Economics.
- Hess, Gregory D. & Shin, Kwanho, 2000.
"Risk sharing by households within and across regions and industries,"
Journal of Monetary Economics,
Elsevier, vol. 45(3), pages 533-560, June.
- Gregory D. Hess & Kwanho Shin, 1997. "Risk sharing by households within and across regions and industries," Research Working Paper 97-07, Federal Reserve Bank of Kansas City.
- Susan Dynarski & Jonathan Gruber, 1997. "Can Families Smooth Variable Earnings?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 229-303.
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
- Murphy, Kevin M & Topel, Robert H, 1985.
"Estimation and Inference in Two-Step Econometric Models,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 3(4), pages 370-79, October.
- Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
- Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.