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

University of Padua Economics Discussion Paper No. 39-2003

51 Pages Posted: 1 Jul 2004

See all articles by Antonio Nicolò

Antonio Nicolò

University of Padua - Department of Economics; University of Manchester

Piero Tedeschi

Università Cattolica; Catholic University of the Sacred Heart of Milan

Date Written: April 2004

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

JEL Classification: D82, K12, D10

Suggested Citation

Nicolò, Antonio and Tedeschi, Piero, Missing Contracts: On the Rationality of Not Signing a Prenuptial Agreement (April 2004). University of Padua Economics Discussion Paper No. 39-2003, Available at SSRN: https://ssrn.com/abstract=555261 or http://dx.doi.org/10.2139/ssrn.555261

Antonio Nicolò (Contact Author)

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

University of Manchester ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Piero Tedeschi

Università Cattolica ( email )

United States
+390272342779 (Phone)
+390272342781 (Fax)

Catholic University of the Sacred Heart of Milan

Italy

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