Cremer, Helmuth, Pestieau, Pierre and Roeder, Kerstin (2012) United but (un)equal: human capital, probability of divorce and the marriage contract. TSE Working Paper, n. 12-363, Toulouse

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Abstract

This paper studies how the risk of divorce affects the human capital decisions of a young
couple. We consider a setting where complete specialization (one of the spouses uses
up all the education resources) is optimal with no divorce risk. Symmetry in education
(both spouses receive an equal amount of education) then acts like an insurance device
in case of divorce particularly when the institutions do not compensate for differences
in earnings. But, at the same time symmetry in education is less e¢ cient than the
extreme specialization. This is the basic tradeoff underlying our analysis. We show
that the symmetric allocation will become more attractive as the probability of divorce
increases, if risk aversion is high and/or labor supply elasticity is low. However, it is only
a ?second-best? solution as the insurance protection is achieved at the expense of an
e¢ ciency loss. E¢ ciency can be restored through suitably designed marriage contracts
because they can provide the appropriate insurance against divorce to a couple who
opts for specialization. Finally, we study how the (economic) use of marriage is affected
by the possibility of divorce.

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• United but (un)equal: human capital, probability of divorce and the marriage contract. (deposited 09 Jul 2014 17:31) [Currently Displayed]
  • United but (un)equal: human capital, probability of divorce and the marriage contract. (deposited 16 Mar 2015 14:44)