Divorce and Savings

Carol Scotese ()

No 352, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: This paper examines the pattern of consumption and savings when heterogeneous agents enter into marriage and have the option of dissolving the marriage if there exists no set of consumption allocations that can preserve the union. The research presents an analysis of this scenario using dynamic cooperative bargaining models of household decision making with a divorce threat point. The model will be used to examine the behavior of household savings when divorce is a possibility and may help to explain the rapid decline in household saving during the 1980s. Most existing bargaining models of household spending decisions are static and, therefore, unable to analyze the savings decision. In this paper the evolution of household savings depends upon both partners' consumption decisions as well as the income paths of each partner. If cooperation breaks down (if the value of dissolution exceeds any cooperative strategy), the couple divorces and household savings is split according to some rule between the partners. The dynamic nature of the model will allow an investigation of the path of savings in households that do not divorce relative to households that do. Since the value of the threat point changes over time as assets accumulate, both the probability of divorce and household saving will change endogenously over the lifetime of the household. This is true even when the value of other opportunities outside the marriage are constant. Of course, as the value of opportunities outside the marriage change, each partnerÍs incentive to contribute to savings changes.

Date: 1999-03-01
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf9:352

Access Statistics for this paper

More papers in Computing in Economics and Finance 1999 from Society for Computational Economics CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().