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Should We Write Prenuptial Contracts?

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Helmut Rainer ()

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Abstract

When a marriage dissolves, a couple usually divides all marital assets according to the division rule imposed upon them by the state. The present paper uses incomplete contract theory to study the interplay between the state’s division rule and a married couple’s investment in relationship-specific assets. The inability of spouses to contract upon their specific investments, leads them to choose less than the first-best level of investment. To the extent that this underinvestment poses a threat to the stability of marriage, this creates a role for the use of ex ante separation agreements that stipulate the allocation of marital assets upon divorce. We examine the type of contractual structure that the partners should optimally adopt at the outset of marriage. The implications of our results are then applied in the context of various asset division rules discussed by policy makers.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 572.

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Date of creation: 05 Dec 2003
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Handle: RePEc:esx:essedp:572

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  25. David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 361-386, May. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Marco Francesconi & Helmut Rainer & Wilbert van der Klaauw, 2007. "The Effects of In-Work Benefit Reform in Britain on Couples: Theory and Evidence," CRIEFF Discussion Papers 0709, Centre for Research into Industry, Enterprise, Finance and the Firm. [Downloadable!]
    Other versions:
  2. Chiappori, Pierre-André & Iyigun, Murat & Weiss, Yoram, 2008. "An Assignment Model with Divorce and Remarriage," IZA Discussion Papers 3892, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Helmut Rainer, 2004. "Gender Discrimination and Effciency in Marriage: the Bargaining Family under Scrutiny," Economics Discussion Papers 586, University of Essex, Department of Economics. [Downloadable!]
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  4. Christine Atteneder & Martin Halla, 2006. "Bargaining at divorce: The allocation of custody," Economics working papers 2006-18, Department of Economics, Johannes Kepler University Linz, Austria, revised Jan 2007. [Downloadable!]
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  5. Langlais, Eric, 2009. "On unilateral divorce and the "selection of marriages" hypothesis," MPRA Paper 14368, University Library of Munich, Germany. [Downloadable!]
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  6. Helmut Rainer, 2005. "Should We Write Prenuptial Contracts?," Discussion Paper Series, Department of Economics 0514, Department of Economics, University of St. Andrews. [Downloadable!]
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