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Risk, cohabitation and marriage

Author

Listed:
  • Rao Sahib, P.
  • Gu, X.

    (Groningen University)

Abstract

This paper introduces imperfect information,learning,and risk aversion in a two sided matching model.The modelprovides a theoreticalframework for the com- monly occurring phenomenon of cohabitation followed by marriage,and is con- sistent with empirical findings on these institutions.The paper has three major results.First,individuals set higher standards for marriage than for cohabitation. When the true worth of a cohabiting partner is revealed,some cohabiting unions are converted into marriage while others are not.Second,individuals cohabit within classes.Third,the premium that compensates individuals for the higher risk involved in marriage over a cohabiting partnership is derived.This premium can be decomposed into two parts.The first part is a function of the individual ’s level of risk aversion,while the second part is a function of the di difference in risk between marriage and cohabitation.

Suggested Citation

  • Rao Sahib, P. & Gu, X., 2000. "Risk, cohabitation and marriage," Research Report 00D56, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:00d56
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    File URL: http://irs.ub.rug.nl/ppn/24099907X
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    References listed on IDEAS

    as
    1. Bloch, Francis & Ryder, Harl, 2000. "Two-Sided Search, Marriages, and Matchmakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 93-115, February.
    2. Waters, Melissa S. & Ressler, Rand W., 1999. "An economic model of cohabitation and divorce," Journal of Economic Behavior & Organization, Elsevier, vol. 40(2), pages 195-206, October.
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