Apr 30, 2012

Marriage, divorce, and risk sharing

In this paper, we explore the extent to which marriages influence inter-region risk sharing. We find that US states, where the married population represents a higher fraction of the total population, manage to share a larger fraction of their idiosyncratic risks. We draw two broad conclusions from our results: First, even in the US, where highly developed financial markets should be capable of providing substantial risk sharing, informal insurance mechanisms, such as marriages, still play a role. And second, we find that marriages do not only improve risk sharing at the individual level and within states, but also result in a higher degree of risk sharing across states. That is, marriages also help to smooth the impact of state-specific shocks which cannot be smoothed within states.
We also find some evidence that the impact of marriage on risk sharing is quantitatively more important in periods of economic downturns . . .
That is from the paper "Marriage, Divorce and Interstate Risk Sharing" by Halla and Scharler (Scandinavian Journal of Economics, March 2012), see a draft here (October 2008). Regarding the introduction of unilateral divorce legislation, the authors claim: ". . . unilateral divorce has reduced the risk sharing enhancing effect of marriage" (p.16).

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