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Marriage, Divorce, and Asymmetric Information

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  • Steven Stern

    ()

  • Leora Friedberg

    ()

Abstract

In answers to unique questions from the National Survey of Fam- ilies and Households, people reveal their valuations of their options outside of marriage as well as their beliefs about their spouses?options. We use this data to demonstrate several features of household bargaining. First, we document marriages in which one spouse would be happier outside the marriage and the other spouse would be unhappier. This provides a new type of evidence that bargaining takes place. Second, we show that spouses have private information about their outside options, and we estimate a bargaining model that quanti?es the extent of resulting ine¢ ciencies. Third, we incorporate caring preferences and imperfect substitutability of utility into the estimation. Without these features, estimation predicts unrealistically high divorce rates, arising because spouses drive too hard a bargain in the presence of asymmetric information and linear utility. After allowing for interdependent and diminishing marginal util- ity from marital surplus, both of which are identi?ed by incorporating divorce data, our divorce predictions are reasonable. These results show that agents forego their own utility in order to raise the utility of their spouses, and, in doing so, o¤set much of the ine¢ ciency generated by their imperfect knowledge. In contrast, a social planner with only public information about spouses?outside options reduces welfare considerably by keeping far too many couples together. In sum, we ?nd evidence about two key features of marriage ?asymmetric in- formation and interdependent utility ?which are difficult to identify in most studies of interpersonal relationships.

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File URL: http://www.virginia.edu/economics/RePEc/vir/virpap/papers/virpap385.pdf
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Bibliographic Info

Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 385.

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Length: 57 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:vir:virpap:385

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Web page: http://www.virginia.edu/economics/home.html

Related research

Keywords: marriage; divorce; bargaining; asymmetric information;

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References

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  1. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, Elsevier, vol. 15(2), pages 211-245, February.
  2. Yeon-Koo Che & Jozsef Sakovics, 2004. "A Dynamic Theory of Holdup," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 74, Edinburgh School of Economics, University of Edinburgh.
  3. Gallant, A. Ronald & Golub, Gene H., 1984. "Imposing curvature restrictions on flexible functional forms," Journal of Econometrics, Elsevier, Elsevier, vol. 26(3), pages 295-321, December.
  4. Ligon, Ethan, 2002. "Dynamic bargaining in households (with application to Bangladesh)," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt1t52k4c5, Department of Agricultural & Resource Economics, UC Berkeley.
  5. Libertad González Luna & Tarja K. Viitanen, 2006. "The effect of divorce laws on divorce rates in Europe," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 986, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Audra Bowlus & Shannon Seitz, 2005. "Domestic Violence, Employment, and Divorce," Working Papers, Queen's University, Department of Economics 1075, Queen's University, Department of Economics.
  7. Lundberg, Shelly & Startza, Richard & Stillman, Steven, 2003. "The retirement-consumption puzzle: a marital bargaining approach," Journal of Public Economics, Elsevier, Elsevier, vol. 87(5-6), pages 1199-1218, May.
  8. Giulio Fella & Paola Manzini & Marco Mariotti, 2004. "Does Divorce Law Matter?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(4), pages 607-633, 06.
  9. Maurizio Mazzocco, 2007. "Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 857-895.
  10. Chiappori, Pierre-André & Fortin, Bernard & Lacroix, Guy, 2001. "Marriage Market, Divorce Legislation and Household Labor Supply," Cahiers de recherche, Université Laval - Département d'économique 0103, Université Laval - Département d'économique.
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  12. Peters, H Elizabeth, 1986. "Marriage and Divorce: Informational Constraints and Private Contracting," American Economic Review, American Economic Association, American Economic Association, vol. 76(3), pages 437-54, June.
  13. Christopher R. Udry & Esther Duflo, 2004. "Intrahousehold Resource Allocation in Cote D'Ivoire: Social Norms, Separate Accounts and Consumption Choices," Yale School of Management Working Papers, Yale School of Management ysm407, Yale School of Management.
  14. Gallant, A. Ronald, 1982. "Unbiased determination of production technologies," Journal of Econometrics, Elsevier, Elsevier, vol. 20(2), pages 285-323, November.
  15. Stern, Steven, 1996. "Semiparametric estimates of the supply and demand effects of disability on labor force participation," Journal of Econometrics, Elsevier, Elsevier, vol. 71(1-2), pages 49-70.
  16. Adam, Christopher & Hoddinott, John & Ligon, Ethan, 2011. "Dynamic intrahousehold bargaining, matrimonial property law and suicide in Canada," CUDARE Working Paper Series, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy 1113, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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Citations

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Cited by:
  1. Leora Friedberg & Anthony Webb, 2006. "Determinants and Consequences of Bargaining Power in Households," Working Papers, Center for Retirement Research at Boston College, Center for Retirement Research wp2006-13, Center for Retirement Research, revised Jun 2006.
  2. Siwan Anderson & Garance Genicot, 2014. "Suicide and Property Rights in India," NBER Working Papers 19978, National Bureau of Economic Research, Inc.
  3. Telalagic, S., 2012. "Domestic Production as a Source of Marital Power: Theory and Evidence from Malawi," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1243, Faculty of Economics, University of Cambridge.

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