Human Capital and the Risk of Divorce: An Asset in Search of a Property Right

Abstract

The new home economics [2; 5; 6; 7] analyzes investments in human capital or children in terms of a model of household decision-making. Traditionally, a harmony of interests between the spouses is assumed to prevail, and this is formalized by postulating a household utility function [9] or by assuming the maximization of the joint income of the husband and wife [6]. Recently, the approach has been modified to admit the potential for marital disharmony [3; 4]. The present paper follows this lead and considers how family investments in each partner's human capital is conditioned by the risk of divorce. The focus on human capital, rather than say tangible capital, is of particular interest because of this asset's illiquidity and the fact that the courts have generally not recognized the property rights of one spouse in the human capital acquired by the other during the marriage.' It demonstrates that the absence of property rights generally produces a sub-optimal pattern of human capital investment. Specifically, the risk of divorce leads to overinvestment in human capital, with this outcome being more likely the greater the fragility of the marital relationship.