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For Better or For Worse? State Level Marital Formation and Risk Sharing

Author

Listed:
  • Ralph Chami

    (International Monetary Fund)

  • Gregory D. Hess

    (Claremont McKenna College and CESifo)

Abstract

Why do some U.S. states have higher levels of marital formation than others? This paper introduces an economic model wherein a state's representative individual may choose to marry in order to diversify his or her idiosyncratic income risk. The paper demonstrates that such a diversification motive is enhanced for some utility functions when a state's level of undiversifiable risk becomes larger, and when a state's initial income and growth rate is lower. A test of the model's predictions, using cross-sectional data for the 50 U.S. states, suggests that there is broad support for a risk sharing motive for marriage as well as a precautionary attitude towards risk.

Suggested Citation

  • Ralph Chami & Gregory D. Hess, 2002. "For Better or For Worse? State Level Marital Formation and Risk Sharing," Claremont Colleges Working Papers 2002-07, Claremont Colleges.
  • Handle: RePEc:clm:clmeco:2002-07
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    File URL: http://www.claremontmckenna.edu/rdschool/papers/2002-07.pdf
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    References listed on IDEAS

    as
    1. Gregory D. Hess, 2004. "Marriage and Consumption Insurance: What's Love Got to Do with It?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 290-318, April.
    2. Leora Friedberg, 1998. "Did Unilateral Divorce Raise Divorce Rates? Evidence from Panel Data," NBER Working Papers 6398, National Bureau of Economic Research, Inc.
    3. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    4. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
    5. Susan Dynarski & Jonathan Gruber, 1997. "Can Families Smooth Variable Earnings?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 229-303.
    6. Athanasoulis, Stefano G. & van Wincoop, Eric, 2000. "Growth uncertainty and risksharing," Journal of Monetary Economics, Elsevier, pages 477-505.
    7. Del Negro, Marco, 2002. "Asymmetric shocks among U.S. states," Journal of International Economics, Elsevier, vol. 56(2), pages 273-297, March.
    8. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, pages 515-526.
    9. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May.
    10. Gregory D. Hess & Kwanho Shin, 1999. "Risk sharing of disaggregate macroeconomic and idiosyncratic shocks," Working Paper 9915, Federal Reserve Bank of Cleveland.
    11. Ralph Chami & Gregory Hess, 2005. "For Better or For Worse? State-Level Marital Formation and Risk Sharing," Review of Economics of the Household, Springer, vol. 3(4), pages 367-385, December.
    12. Jonathan Gruber, 2000. "Is Making Divorce Easier Bad for Children? The Long Run Implications of Unilateral Divorce," NBER Working Papers 7968, National Bureau of Economic Research, Inc.
    13. Hess, Gregory D. & Shin, Kwanho, 1998. "Intranational business cycles in the United States," Journal of International Economics, Elsevier, vol. 44(2), pages 289-313, April.
    14. Hess, Gregory D. & Shin, Kwanho, 2000. "Risk sharing by households within and across regions and industries," Journal of Monetary Economics, Elsevier, pages 533-560.
    15. Gregory D. Hess, 2001. "Marriage and Consumption Insurance: What’s Love Got to do With It?," CESifo Working Paper Series 507, CESifo Group Munich.
    16. Todd E. Clark & Kwanho Shin, 1998. "The sources of fluctuations within and across countries," Research Working Paper 98-04, Federal Reserve Bank of Kansas City.
    17. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    18. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    19. Mario J Crucini & Gregory D Hess, 1999. "International and Intranational Risk Sharing," CESifo Working Paper Series 227, CESifo Group Munich.
    20. Lupton, J. & Smith, J.P., 1999. "Marriage, Assets, and Savings," Papers 99-12, RAND - Labor and Population Program.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ralph Chami & Gregory Hess, 2005. "For Better or For Worse? State-Level Marital Formation and Risk Sharing," Review of Economics of the Household, Springer, vol. 3(4), pages 367-385, December.
    2. Martin Halla & Johann Scharler, 2012. "Marriage, Divorce, and Interstate Risk Sharing," Scandinavian Journal of Economics, Wiley Blackwell, pages 55-78.
    3. Filippo Pericoli & Luigi Ventura, 2012. "Family dissolution and precautionary savings: an empirical analysis," Review of Economics of the Household, Springer, vol. 10(4), pages 573-595, December.
    4. Wataru Kureishi & Midori Wakabayashi, 2013. "What motivates single women to save? the case of Japan," Review of Economics of the Household, Springer, vol. 11(4), pages 681-704, December.
    5. Christopher Brown & Randall Kesselring, 2006. "Declining marriage ratios of young black women: Testing alternative economic hypotheses," The Review of Black Political Economy, Springer;National Economic Association, vol. 33(4), pages 27-48, March.
    6. Stephen Shore, 2015. "The co-movement of couples’ incomes," Review of Economics of the Household, Springer, vol. 13(3), pages 569-588, September.
    7. Nzinga Broussard & Ralph Chami & Gregory Hess, 2015. "(Why) Do self-employed parents have more children?," Review of Economics of the Household, Springer, vol. 13(2), pages 297-321, June.

    More about this item

    Keywords

    Consumption Insurance; Marriage;

    JEL classification:

    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • D1 - Microeconomics - - Household Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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