Marriage, Divorce and Reciprocity-based Cooperation

This paper considers partnership formation, partnership dissolution and reciprocity‐based cooperation by couples in the form of voluntary transfers to smooth consumption. While risk sharing is one benefit of having a partner, it is also limited by the (endogenous) risk of separation. The equilibrium formation and dissolution of partnerships are determined simultaneously with cooperative behavior. Publicly provided earnings insurance is shown to increase the “turnover” rate in the marriage market as well as to reduce the steady‐state marriage rate and the implicit financial cooperation between partners.