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Endogenous divorce risk and investment

Author

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  • Andrew Grant

    (University of Sydney)

  • Steve Satchell

    (University of Sydney
    University of Cambridge)

Abstract

This paper addresses issues of divorce, consumption and investment. Divorce, in our model, is a forward put option on a non-traded variable, marital quality. We endogenise divorce so that the future decision that the couple makes will depend, inter alia, on current consumption, current wealth, investment outcomes and marital quality. We suggest a number of specifications for the bivariate utility of wealth and marital quality. We find that the mixex framework of Tsetlin and Winkler (Manag Sci 55:1942–1952, 2009) offers a useful combination of flexibility and tractability for our problem. Calibrations illustrating the usefulness of the model are provided.

Suggested Citation

  • Andrew Grant & Steve Satchell, 2019. "Endogenous divorce risk and investment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 32(3), pages 845-876, July.
    • Handle: RePEc:spr:jopoec:v:32:y:2019:i:3:d:10.1007_s00148-018-0719-7
    DOI: 10.1007/s00148-018-0719-7
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    More about this item

    Keywords

    Divorce; Consumption-investment; Two-period model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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