An Equilibrium Analysis of Marriage, Divorce and Risk-Sharing

This paper considers marriage, divorce and reciprocity-based cooperation by couples in the form of sharing of earnings-risk. While risk sharing is one benefit to marriage it is also limited by divorce risk. With search in the marriage market there may be multiple equilibria differing not only in family formation and dissolution patterns but also in the role of marriage in providing informal insurance. Publicly provided earnings-insurance, despite potential equilibrium multiplicity, is shown to affect family formation and financial cooperation monotonically.