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Missing Contracts: On the Rationality of not Signing a Prenuptial Agreement

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  • Antonio Nicolò
  • Piero Tedeschi

Abstract

Many couples do not sign prenuptial agreements, even though this often leads to costly and inefficient litigation in case of divorce. In this paper we show that strategic reasons may prevent agents from signing prenuptial agreements. Partners who value more the benefit of the marriage wish to signal their type by running the risk of a costly divorce. Hence this contract incompleteness arises as a screening device. Moreover, the threat of costly divorce is credible since the lack of an ex-ante agreement leads to a moral hazard problem within the couple, which induces partners to reject any ex-post amicable agreement.

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File URL: http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20060506.pdf
File Function: First version, May 2006
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Paper provided by Università degli Studi di Milano-Bicocca, Dipartimento di Statistica in its series Working Papers with number 20060506.

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Length: 30 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:mis:wpaper:20060506

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Keywords: symmetric information; incomplete contracts; prenuptial agreement.;

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  1. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
  2. Hermalin, Benjamin, 1990. "Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training," Department of Economics, Working Paper Series qt3636n9n2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  8. 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..
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  10. Imran Rasul, 2006. "Marriage Markets and Divorce Laws," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(1), pages 30-69, April.
  11. Dye, Ronald A, 1985. "Costly Contract Contingencies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-50, February.
  12. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  13. William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
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  16. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 230-55, October.
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Cited by:
  1. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.

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