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Missing Contracts: On the Rationality of not Signing a Prenuptial Agreement

  • Antonio Nicolò
  • Piero Tedeschi

Many couples do not sign prenuptial agreements, even though this often leads to costly and inefficient litigation in case of divorce. In this paper we show that strategic reasons may prevent agents from signing prenuptial agreements. Partners who value more the benefit of the marriage wish to signal their type by running the risk of a costly divorce. Hence this contract incompleteness arises as a screening device. Moreover, the threat of costly divorce is credible since the lack of an ex-ante agreement leads to a moral hazard problem within the couple, which induces partners to reject any ex-post amicable agreement.

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File URL: http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20060506.pdf
File Function: First version, May 2006
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Paper provided by Università degli Studi di Milano-Bicocca, Dipartimento di Statistica in its series Working Papers with number 20060506.

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Length: 30 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:mis:wpaper:20060506
Contact details of provider: Postal: Via Bicocca degli Arcimboldi 8, 20126 Milano
Web page: http://www.statistica.unimib.it

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  1. Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
  2. Hermalin Benjamin E., 2002. "Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 1(1), pages 1-21, July.
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  8. Imran Rasul, 2006. "Marriage Markets and Divorce Laws," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(1), pages 30-69, April.
  9. Bordignon, Massimo & Brusco, Sandro, 2001. "Optimal secession rules," European Economic Review, Elsevier, vol. 45(10), pages 1811-1834, December.
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  12. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
  13. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  14. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 230-55, October.
  15. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
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  17. William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
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