The seminal (economist’s!) answer to this question has been offered by my old teacher in grad school and my colleague till a few years ago, Kathy Spier, in her paper “Incomplete Contracts and Signaling”. As her title suggests, her core idea is based on signaling: an informed party making an offer in a game signals his private information via the offer. An offer that carries a negative inference may not be made. Kathy’s model is quite complex but it’s central logic is captured in a passage from her paper:
A fellow might hesitate to ask his fiancée to sign a prenuptial agreement…. because to do so would lead her to believe that the quality of the marriage – or the probability of divorce – are higher than she had thought.
In the new century, roles are reversed – the wealthy partner might be female and the poor one male. If there is no pre-nup, the man can extract a large fraction of his ex-wife’s wealth after a divorce. In that situation, to signal his love, the man should offer to sign a pre-nup that gives him none of his ex-wife’s fortune. If he is confident the marriage will survive, divorce is impossible anyway , so why worry about income in an impossible event?
Alas, as the poets have long told us, the path of true love does not run smooth – the most well-intentioned and loving couple can find their marriage has hit the rocks. Then, there will be much regret and perhaps desperate, legal action to extract enough cash to live in the style to which one has become accustomed.
And so I turn finally to this sad case in the British courts:
When Katrin Radmacher and Nicolas Granatino married in 1998, she insisted it had been for love, not for money. That was why the wealthy German heiress had ensured that her banker husband signed a prenuptial agreement promising to make no claims on her fortune if the marriage failed. It was, she said, “a way of proving you are marrying only for love”.
Once the love had gone, however – the couple separated in 2006 – the fortune remained, and Granatino, by then a mature student at Oxford, decided to challenge the prenup, which they had signed in Germany before marrying and divorcing in Britain, arguing it had no status in English law.
But Granatino lost.
I’m sure a research paper can come out of this: two-sided incomplete information, two-sided signaling and optimal contracting…..I’m too busy keeping my marriage alive to have the time to write it.
6 comments
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October 20, 2010 at 3:53 pm
Chat
thanks this for blog
October 21, 2010 at 4:05 am
Liz
If the man is marrying up, he signals by signing a pre-nup. If he’s marrying down, he signals by not demanding a pre-nup. Curiously, even in “the new century” the woman isn’t required to signal anything. Or should we write this off as sexist bias inherent in economic academia?
October 22, 2010 at 9:25 am
liza
Liz, love the question, though my initial reaction was to disagree that it must be bias in academia.
Sandeep: soooo trashy, but this reminded me of a certain celebrity couple.
she was minor, he was major. she put off signing a prenup, then right before the wedding refused to sign. She made a major fortune off publicizing their marriage (reality tv show about being married, where apparently she reaped all the profits as the star). at the time of divorce, his fortune was positively puny compared to hers, and she successfully shamed him into not asking for any profits (or very very little) despite the lack of prenup.
October 22, 2010 at 11:02 am
Friday Signaling Roundup « Signal/Noise
[…] How to Signal That You Are Marrying for Love? It’s tougher than you might think. Some suggest using a pre-nuptial agreement to signal one’s love and affection instead of their love of money. If one is truly marrying for love and not money they should have no problem signing a pre-nup if they are the less-wealthy of the pair. However, the pre-nup may act as a signal from the wealthier of the two parties that they have reason to believe that the marriage will not last. Therefore, pre-nups are likely only an optimal signal when they are suggested at first by the least wealthy member of the couple. (via Cheap Talk) […]
October 26, 2010 at 1:27 pm
Amit
did anyone else notice the “marriage visa” ad that google decided to place on this blog entry!?
October 14, 2011 at 7:34 pm
chat odasi
hei Ilike it very much, I hope you will soon update your work!thanks for sharing.