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United but (Un-)Equal: Human Capital, Probability of Divorce and the Marriage Contract

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Author Info

  • Cremer, Helmuth

    ()
    (Toulouse School of Economics)

  • Pestieau, Pierre

    ()
    (CREPP, Université de Liège)

  • Roeder, Kerstin

    ()
    (University of Munich)

Abstract

This paper studies how the risk of divorce affects 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 differences in earnings. But, at the same time symmetry in education is less efficient than the extreme specialization. This is the basic tradeoff 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 efficiency loss. Efficiency 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 affected by the possibility of divorce.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7038.

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Length: 28 pages
Date of creation: Nov 2012
Date of revision:
Publication status: forthcoming in: Journal of Population Economics, 2014.
Handle: RePEc:iza:izadps:dp7038

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

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  1. Lommerud, Kjell Erik, 1989. "Marital Division of Labor with Risk of Divorce: The Role of "Voice" Enforcement of Contracts," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 113-27, January.
  2. 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, .
  3. Gonzalez, Libertad & Özcan, Berkay, 2008. "The Risk of Divorce and Household Saving Behavior," IZA Discussion Papers 3726, Institute for the Study of Labor (IZA).
  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. 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).
  6. Konrad, Kai A & Lommerud, Kjell Erik, 1996. "The Bargaining Family Revisited," CEPR Discussion Papers 1312, C.E.P.R. Discussion Papers.
  7. 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.
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