Endogenous divorce risk and investment

Andrew Grant () and Steve Satchell ()
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Andrew Grant: University of Sydney
Steve Satchell: University of Sydney

Journal of Population Economics, 2019, vol. 32, issue 3, No 4, 845-876

Abstract: Abstract This paper addresses issues of divorce, consumption and investment. Divorce, in our model, is a forward put option on a non-traded variable, marital quality. We endogenise divorce so that the future decision that the couple makes will depend, inter alia, on current consumption, current wealth, investment outcomes and marital quality. We suggest a number of specifications for the bivariate utility of wealth and marital quality. We find that the mixex framework of Tsetlin and Winkler (Manag Sci 55:1942–1952, 2009) offers a useful combination of flexibility and tractability for our problem. Calibrations illustrating the usefulness of the model are provided.

Keywords: Divorce; Consumption-investment; Two-period model (search for similar items in EconPapers)
JEL-codes: G12 G23 G24 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s00148-018-0719-7

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