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For Better or For Worse? State-Level Marital Formation and Risk Sharing

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Abstract

Why do some U.S. states have higher levels of marital formation than others? This paper introduces an economic model wherein a state’s representative individual may choose to marry in order to diversify his or her idiosyncratic income risk. The paper demonstrates that such a diversification motive is enhanced for some utility functions when a state’s level of undiversifiable risk becomes larger, and when a state’s initial income is lower. A test of the model’s predictions, using cross-sectional data for the 50 U.S. states, provides some suggestive evidence for a risk sharing motive in marriage formation and joint spouse labor participation.

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Authors and Affiliations

  1. International Monetary Fund Institute, 700 19th St., Washington, DC, NW, 20431, USA

    Ralph Chami & Gregory D. Hess

Authors
  1. Ralph Chami
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  2. Gregory D. Hess
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Correspondence to Gregory D. Hess.

Additional information

This paper has particularly benefited from comments by Chuck Carlstrom, Jon Gruber, John Shea, Jennifer Ward-Batts and seminar participants at Claremont McKenna College, Oberlin College, the Federal Reserve Bank of Cleveland and the NBER Summer Institute session on Children. We also thank Shoshana Grossbard and two anonymous referees for their extremely helpful comments and suggestions. This paper was written while Hess was an academic consultant to the Federal Reserve Bank of Cleveland and the IMF Institute. The opinions expressed are those of the authors and do not necessarily reflect views of the Federal Reserve Bank of Cleveland, the Federal Reserve System, or the International Monetary Fund.

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Chami, R., Hess, G.D. For Better or For Worse? State-Level Marital Formation and Risk Sharing. Rev Econ Household 3, 367–385 (2005). https://doi.org/10.1007/s11150-005-4940-2

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  • DOI: https://doi.org/10.1007/s11150-005-4940-2

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