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Journal of Population Economics

, Volume 28, Issue 1, pp 195–217 | Cite as

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

  • Helmuth CremerEmail author
  • Pierre Pestieau
  • Kerstin Roeder
Original Paper

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 is optimal with no divorce risk. Couples can self-insure through savings which offers some protection to the uneducated spouse, but at the expense of a distortion. Alternatively, for large divorce probabilities, symmetry in education, where both spouses receive an equal amount of education, may be optimal. This eliminates the risk associated with the lack of education, but reduces the efficiency of education choices. 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 insurance protection is achieved at the expense of an efficiency loss. Finally, we study how the (economic) use of marriage is affected by the possibility of divorce.

Keywords

Post-marital education Marriage contract Divorce 

JEL Classifications

D13 J24 K36 

Notes

Acknowledgments

Financial support from the Chaire “Marché des risques et creation de valeur” of the FdR/SCOR is gratefully acknowledged. We are grateful to the editor, Alessandro Cigno, and to the two referees for their insightful and constructive comments. We also thank Sara Meade for her prompt and effective text editing.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Helmuth Cremer
    • 1
    Email author
  • Pierre Pestieau
    • 2
  • Kerstin Roeder
    • 3
  1. 1.Toulouse School of Economics (IDEI and Institut universitaire de France)ToulouseFrance
  2. 2.CREPP, University of Liège, CORE, UCL and TSELiègeBelgium
  3. 3.LMUMunichGermany

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