an economist's view of marriage

Doug Henwood dhenwood at panix.com
Sat Sep 1 09:58:56 PDT 2001


[it's so hard to tell if these are intended as parodies...]

"Marriage and Consumption Insurance: What's Love Got to Do With

It?"

BY: GREGORY D. HESS

Oberlin College

CESifo (Center for Economic Studies and Ifo

Institute for Economic Research)

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Paper ID: CESifo Working Paper Series No. 507

Date: June 2001

Contact: GREGORY D. HESS

Email: Mailto:gregory.hess at oberlin.edu

Postal: Oberlin College

Oberlin, OH 44074 USA

Paper Requests:

Hardcopies For Libraries: contact Gertraud Porak, Postal: CESifo

Inc., Poschinger Str. 5, 81679 Munich, Germany.

Mailto:porak at CESifo.de http://www.CESifo.de

ABSTRACT:

This paper explores the role of marriage when markets are

incomplete so that individuals cannot diversify their

idiosyncratic labor income risk. Ceteris paribus, an individual

would prefer to marry a "hedge" (i.e., a spouse whose income is

negatively correlated with her own) as it raises her expected

utility. However, the existence of love complicates the picture:

while marrying a hedge is important, an individual may not do so

if she finds someone with whom she shares a great deal of love.

Is love more important to a lasting marriage than economic

compatibility? To answer this question, I develop a simple model

where rational individuals meet, enjoy the economic and

non-pecuniary benefits of marriage (i.e., love), and then must

decide whether to remain married or divorce.

The model predicts that if love is persistent and the

resolution of uncertainty to agents' income is early, then those

who in fact married hedges (and for good reason) are the ones

most likely to be caught short with too little love in order to

save a marriage in the event of an adverse shock. Consequently,

under these conditions individuals who are good hedges for one

another are more likely to marry one another, although once

married, they will be more likely to divorce. In contrast, if

love is temporary (in the sense of reverting to a common mean)

and the resolution of uncertainty to agents' income is

predominantly later, then those who in fact marry hedges will in

fact be less likely to subsequently divorce. Evidence is

provided to distinguish which of these alternative scenarios is

in support of these aspects of the decision to stay married.

Additional hypotheses regarding the effect of differences in the

expected means and volatilities of partners' incomes are also

derived from the theory and tested.

Keywords: Consumption Insurance, Marriage



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