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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. Libertad González & Tarja K. Viitanen, 2006. "The Effect of Divorce Laws on Divorce Rates in Europe," Working Papers 2006003, The University of Sheffield, Department of Economics, revised Mar 2006.
  2. Giulio Fella & Paola Manzini & Marco Mariotti, 2004. "Does Divorce Law Matter?," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 607-633, 06.
  3. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
  4. Shelly Lundberg & Richard Startz & Steven Stillman, 2001. "The Retirement-Consumption Puzzle: A Marital Bargaining Approach," Working Papers 01-04, RAND Corporation Publications Department.
  5. Yeon-Koo Che & József Sákovics, 2004. "A Dynamic Theory of Holdup," Econometrica, Econometric Society, vol. 72(4), pages 1063-1103, 07.
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  7. Adam, Christopher & Hoddinott, John & Ligon, Ethan, 2011. "Dynamic intrahousehold bargaining, matrimonial property law and suicide in Canada," CUDARE Working Paper Series 1113, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  8. Pierre-André Chiappori & Bernard Fortin & Guy Lacroix, 2001. "Marriage Market, Divorce Legislation and Household Labor Supply," CIRANO Working Papers 2001s-16, CIRANO.
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  10. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
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  12. 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.
  13. Stern, Steven, 1996. "Semiparametric estimates of the supply and demand effects of disability on labor force participation," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 49-70.
  14. Gallant, A. Ronald & Golub, Gene H., 1984. "Imposing curvature restrictions on flexible functional forms," Journal of Econometrics, Elsevier, vol. 26(3), pages 295-321, December.
  15. Audra J. Bowlus & Shannon Seitz, 2006. "Domestic Violence, Employment, And Divorce," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1113-1149, November.
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  17. Ligon, Ethan, 2002. "Dynamic bargaining in households (with application to Bangladesh)," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1t52k4c5, Department of Agricultural & Resource Economics, UC Berkeley.
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Cited by:
  1. Siwan Anderson & Garance Genicot, 2014. "Suicide and Property Rights in India," NBER Working Papers 19978, National Bureau of Economic Research, Inc.
  2. Leora Friedberg & Anthony Webb, 2006. "Determinants and Consequences of Bargaining Power in Households," Working Papers, Center for Retirement Research at Boston College wp2006-13, Center for Retirement Research, revised Jun 2006.
  3. Telalagic, S., 2012. "Domestic Production as a Source of Marital Power: Theory and Evidence from Malawi," Cambridge Working Papers in Economics 1243, Faculty of Economics, University of Cambridge.

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