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Marriage and consumption insurance: what's love got to do with it?

Gregory Hess ()

No 104, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper explores marriage?s role when markets are incomplete and individuals cannot diversify their idiosyncratic labor income risk. All else being equal, an individual would rather marry a ?hedge? (a person whose income is negatively correlated with her own) because doing so raises her expected utility. However, the existence of love complicates the picture: Although 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, the author develops a simple model in which rational individuals meet, enjoy marriage?s economic and nonpecuniary benefits (i.e., love), and then must decide whether to remain married or divorce.

Keywords: Consumption; (Economics) (search for similar items in EconPapers)
Date: 2001, Revised 2001
New Economics Papers: this item is included in nep-dge
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