Marriage, Divorce, and Asymmetric Information 2010 By Leora FriedbergSteven Stern Marriage, Divorce, and Asymmetric Information In answers to unique questions from the National Survey of Families and Households, spouses reveal information about the value of their options outside of marriage as well as their beliefs about the value of their spouses’ outside options. We use this data to demonstrate several features of household bargaining. First, we document marriages in which one spouse would be happier outside the marriage and the other spouse would be unhappier. This provides a new source of evidence that bargaining takes place. Second, we investigate the extent to which information asymmetries influence bargaining. This shows that spouses do in fact have private information about their outside options. We estimate a model of bargaining that allows us to quantify the extent to which asymmetric information generates bargaining inefficiencies and to simulate the impact of a change in divorce costs. Third, we then proceed to incorporate caring preferences in the empirical model. When we estimate our basic specification, we find that the model limits behavior by making spouses drive too hard a bargain with each other. After generalizing the model to include interdependent utilities, our preliminary results quantify how much utility agents forego in order to raise the utility of their spouses. To sum up, we find evidence about two key features of marriage — asymmetric information and interdependent utility — which receive a great deal of attention in not only the economics of the family but also many other aspects of interpersonal relationships. Virginia Economics Online Papers Virginia Economics Online Papers Areas of focus Economics Leora Friedberg Leora Friedberg is an associate professor of economics and public policy at the Batten School and an associate professor and Vice Chair at UVA's Department of Economics. Her focus is on labor economics, including research on social security, aging and retirement economic impacts. Read full bio Steven Stern Related Content Leora Friedberg Labor market aspects of state and local retirement plans: a review of evidence and a blueprint for future research Research Traditional defined benefit (DB) pension plans remain the overwhelming norm for teachers, policemen and other employees of state and local governments. The incentives for workers with DB pension plans to stay in their jobs shift dramatically over the course of their careers. Pensions and K-12 Teacher Retirement: An Analysis Using National Teacher Data Research The retirement security landscape has changed drastically for most workers over the last thirty years – except for public school teachers and other state and local government employees. Many private-sector employers have stopped offering traditional retirement plans, while most state and local employees remain covered by defined benefit (DB) pension plans.