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United but (un)equal: human capital, probability of divorce and the marriage contract

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  • Cremer, Helmuth
  • Pestieau, Pierre
  • Roeder, Kerstin

Abstract

This paper studies how the risk of divorce a¤ects the human capital decisions of a young couple. We consider a setting where complete specialization (one of the spouses uses up all the education resources) is optimal with no divorce risk. Symmetry in education (both spouses receive an equal amount of education) then acts like an insurance device in case of divorce particularly when the institutions do not compensate for di¤erences in earnings. But, at the same time symmetry in education is less e¢ cient than the extreme specialization. This is the basic tradeo¤ underlying our analysis. We show that the symmetric allocation will become more attractive as the probability of divorce increases, if risk aversion is high and/or labor supply elasticity is low. However, it is only a ?second-best? solution as the insurance protection is achieved at the expense of an e¢ ciency loss. E¢ ciency can be restored through suitably designed marriage contracts because they can provide the appropriate insurance against divorce to a couple who opts for specialization. Finally, we study how the (economic) use of marriage is a¤ected by the possibility of divorce.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 755.

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Date of creation: Nov 2012
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Publication status: Published in Journal of Population Economics, 2014.
Handle: RePEc:ide:wpaper:26591

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Keywords: post-marital education; marriage contract; divorce;

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  1. CREMER, Helmuth & PESTIEAU, Pierre & RACIONERO, Mario, . "Unequal wages for equal utilities," CORE Discussion Papers RP -2369, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Libertad González & Berkay Özcan, 2008. "The risk of divorce and household saving behavior," LSE Research Online Documents on Economics 38463, London School of Economics and Political Science, LSE Library.
  3. Borenstein, Severin & Cournat, Paul N, 1989. "How to Carve a Medical Degree: Human Capital Assets in Divorce Settlements," American Economic Review, American Economic Association, vol. 79(5), pages 992-1009, December.
  4. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  5. Konrad, Kai A & Lommerud, Kjell Erik, 1996. "The Bargaining Family Revisited," CEPR Discussion Papers 1312, C.E.P.R. Discussion Papers.
  6. Becker, Gary S, 1974. "A Theory of Marriage: Part II," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages S11-S26, Part II, .
  7. Lommerud, K.E., 1988. "Marital Division Of Labor With Risk Of Divorce: The Role Of Enforcement Of Contracts," Papers 09-88, Norwegian School of Economics and Business Administration-.
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