An option pricing theory explanation of the increase in the divorce rate

Majed Muhtaseb

Applied Economics Letters, 1995, vol. 2, issue 6, 174-176

Abstract: This paper develops an analogy between a financial call option and a child born within wedlock. Outside marriage an unemancipated child represents a real call option to the parent who gains custody. Present value of court ordered monthly child support payment is the market price of the underlying asset. Exercise price is equal to present value of the costs of raising the child. Life of the option stretches from the date on which the divorce decree is issued to the date of emancipation for the child. Variability can be proxied by the standard deviation of the income of the noncustodial parent. A major policy implication evolves from the analogy. The perverse economic incentive of a parent (custodial) to seek custody of the child to exact economic gains out of the other parent (noncustodial) can be mitigated by reducing the value of the call option feature of the child.

Date: 1995
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.informaworld.com/openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

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:taf:apeclt:v:2:y:1995:i:6:p:174-176

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/135048595357375

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().