Overinvestment in Marriage-Specific Capital

Olivier Donni

No 2012-29, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: We consider the decisions of a married couple in a risky environment. The distribution of spouses bargaining power may change as a consequence of new outside opportunities that are offered to them, so that individual consumption may fluctuate over time. This is what we call "bargaining risk". To reduce this risk, the spouses may decide to over-invest in marriage-specific capital (which, by definition, is completely lost in the case of divorce) and thereby limit the attractiveness of spouses outside opportunities. This strategy is shown to be optimal. More surprisingly, over-investment in marriage- specific capital is still an optimal strategy when spouses are confronted to a (small) risk of divorce. This contrasts with the usual intuition.

Keywords: Marriage; Investment; Durable Goods; Specific Capital; Risk. (search for similar items in EconPapers)
JEL-codes: D13 D91 J12 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-dem
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Related works:
Journal Article: Over-investment in marriage-specific capital (2014)
Working Paper: Over-investment in marriage-specific capital (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2012-29

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