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Missing Contracts: On the Rationality of not Signing a Prenuptial Agreement

Antonio Nicolo' and Piero Tedeschi ()
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Antonio Nicolo': Department of Economics University of Padua

Authors registered in the RePEc Author Service: Antonio Nicolo' ()

Game Theory and Information from University Library of Munich, Germany

Abstract: Many couples do not sign prenuptial agreements, even though this often leads to costly and inefficient litigation in case of divorce. In this paper we show that strategic reasons may prevent agents from signing a prenuptial agreement. Partners which have high productivity in marital activities wish to signal their type by running the risk of a costly divorce. Hence this contract incompleteness arises as a screening device. Moreover, the threat of costly divorce is credible since the lack of an ex-ante agreement leads to a moral hazard problem within the couple, which induces partners to reject any ex-post amicable agreement, under specific circumstances. We also investigate conditions that make this contract incompleteness an optimal form of contracting and we briefly discuss the effects of enforceable and/or mandatory premarital agreements on the rate of divorce and on the social welfare. Finally, our model suggests that there is no major objection in making prenuptial agreements enforceable, but also that there are not good reasons to make them mandatory.

Keywords: asymmetric information; incomplete contracts; prenuptial agreement. (search for similar items in EconPapers)
JEL-codes: D82 K12 D10 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2004-06-04
New Economics Papers: this item is included in nep-law
Note: Type of Document - pdf; pages: 50
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Working Paper: Missing Contracts: On the Rationality of not Signing a Prenuptial Agreement (2006) Downloads
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