United but (un)equal: human capital, probability of divorce and the marriage contract

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.

Keywords

Replaced by

Helmuth Cremer, Pierre Pestieau, and Kerstin Roeder, “United but (un)equal: human capital, probability of divorce and the marriage contract”, Journal of Population Economics, vol. 28, n. 1, January 2015, pp. 195–217.

Reference

Helmuth Cremer, Pierre Pestieau, and Kerstin Roeder, “United but (un)equal: human capital, probability of divorce and the marriage contract”, IDEI Working Paper, n. 755, November 2012.