Marriage and Consumption Insurance: What's Love Got To Do With It?
This paper explores the role of marriage when markets are incomplete so that individuals cannot diversify their idiosyncratic labor income risk. Ceteris paribus, an individual would prefer to marry a "hedge" (i.e. a spouse whose income is negatively correlated with her own) as it raises her expected utility. The presence of love, however, complicates the picture. If love is very persistent, for example, and the resolution of uncertainty to agents' income is early, then those who in fact married hedges are the ones most likely to be caught short with too little love in order to save a marriage in the event of an adverse shock. Consequently, under these conditions individuals who are good hedges for one another are more likely to marry one another, although once married, they will be more likely to divorce. In contrast, if love is fleeting and the resolution of uncertainty to agents' income is predominantly later, then those who in fact marry hedges will in fact be less likely to subsequently divorce. Evidence is provided to distinguish which of these alternative scenarios is in support of these aspects of the decision to stay married. Additional hypotheses regarding the effect of differences in the expected means and volatilities of partners' incomes are also derived from the theory and tested.
|Date of creation:||Jan 2002|
|Date of revision:|
|Contact details of provider:|| Postal: 500 E. 9th Street, Claremont, CA 91711|
Phone: (909) 607-3041
Fax: (909) 621-8249
Web page: http://www.claremontmckenna.edu/rdschool/papers/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rosenzweig, Mark R & Stark, Oded, 1989.
"Consumption Smoothing, Migration, and Marriage: Evidence from Rural India,"
Journal of Political Economy,
University of Chicago Press, vol. 97(4), pages 905-26, August.
- Rosenzweig, Mark R. & Stark, Oded, 1987. "Consumption Smoothing, Migration and Marriage: Evidence from Rural India," Bulletins 7515, University of Minnesota, Economic Development Center.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Gregory D. Hess, 2002.
"Marriage and Consumption Insurance: What's Love Got To Do With It?,"
Claremont Colleges Working Papers
2002-15, Claremont Colleges.
- 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.
- Gregory D. Hess, 2001. "Marriage and consumption insurance: what's love got to do with it?," Working Paper 0104, Federal Reserve Bank of Cleveland.
- Gregory D. Hess, 2001. "Marriage and Consumption Insurance: What’s Love Got to do With It?," CESifo Working Paper Series 507, CESifo Group Munich.
- Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October.
- Laurence J. Kotlikoff & Avia Spivak, 1979.
"The Family as an Incomplete Annuities Market,"
NBER Working Papers
0362, National Bureau of Economic Research, Inc.
- Masao Ogaki & Qiang Zhang, 2000.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
Econometric Society World Congress 2000 Contributed Papers
1588, Econometric Society.
- Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-26, March.
- Masao Ogaki & Qiang Zhang, 1998. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Working Papers 98-02, Ohio State University, Department of Economics.
- Hess, Gregory D. & Shin, Kwanho, 2000.
"Risk sharing by households within and across regions and industries,"
Journal of Monetary Economics,
Elsevier, vol. 45(3), pages 533-560, June.
- Gregory D. Hess & Kwanho Shin, 1997. "Risk sharing by households within and across regions and industries," Research Working Paper 97-07, Federal Reserve Bank of Kansas City.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987.
"International real business cycles,"
426, Federal Reserve Bank of Minneapolis.
- Murphy, Kevin M & Topel, Robert H, 2002.
"Estimation and Inference in Two-Step Econometric Models,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 88-97, January.
- Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Gregory D. Hess & Kwanho Shin, 1999.
"Risk sharing of disaggregate macroeconomic and idiosyncratic shocks,"
9915, Federal Reserve Bank of Cleveland.
- Hess, G.D. & Shin, K., 1999. "Risk Sharing of Disaggregate Macroeconomic and Idiosyncratic Shocks," Papers 9915, London School of Economics - Centre for Labour Economics.
- 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.
- Gregory D. Hess & Kwanho Shin, 1995. "Intranational business cycles in the United States," Research Working Paper 95-07, Federal Reserve Bank of Kansas City.
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
- 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.
- Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
- Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
When requesting a correction, please mention this item's handle: RePEc:clm:clmeco:2002-15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.