An Economic Analysis of Marriage and Divorce

University dissertation from Department of Economics, Lund Universtiy

Abstract: The first chapter develops a theoretical model of marriage and divorce. The model has two periods and assumes Pareto efficient time allocations. There is a risk of divorce in the second period, which is modeled as exogenously given. The second chapter utilizes the model developed in the previous chapter to analyze the equality between married men and women. Equality is defined as the spouses' relative weights in the objective function of the family. The weights are decided by pre-marriage Nash bargaining. One result is that better career opportunities imply that the family objective function puts more weight on that spouse's preferences. The third chapter also makes use of the model developed in the first chapter. In this chapter the divorce rule, i.e., the rule according to which the economic consequences of divorce are governed, is analyzed. The main result is that the presence of children at divorce - something which preserves the connection between the spouses' preferences - affects the optimal divorce rule. In the absence of children it is not optimal to combine a division of joint property with alimony or child support. In the presence of children it might be optimal to have a rule which says that joint property shall be divided between the spouses and that one spouse shall pay spousal support or child support to the other spouse. The fourth chapter relaxes the assumption that all decisions may be subject to binding agreements between the spouses. Taking the time allocations as individually decided we analyze the rationale for spousal support. We find similarities between spousal support that induces efficient marital behavior and what would be given by the theory of breach of contract if divorce is regarded as breach by one party. In the fifth chapter we continue the approach from the previous chapter, but we assume that the husband dominates, i.e., that he has a first mover advantage in the process which settles the time allocations. We argue that comparative advantages do not constitute a comprehensive explanation for the division of market and household labor between the spouses, but that also the timing of decisions is important. The sixth chapter recognizes that the parents' altruism towards their children has effects on the time allocations. Using the same type of model as in the two previous chapters we show that relative parental altruism may be another explanation for the division of the spouses' time between market and non-market activities. The seventh chapter examines the risk of divorce empirically, using Swedish data. The results are rather surprising as they do not unambiguously support what can be regarded as the prevailing theoretical and empirical knowledge regarding marital stability. For example, we conclude that the female earning capacity of women is not destabilizing the marrige. On the contrary our findings seem to point in the opposite direction. As expected we find that children are stabilizing the marriage, which is in Iine with the conventional wisdom. We also examine the effects of the spouses' time allocations and education levels on marital stability. We find that the time which the wife does not allocate to the market is more important for the marital stability than the time which the husband does not allocate to the market. As regards education only the effect of the husband's education seems to be important. The husband's education level is positively related to the stability of marriage. Rather surprisingly we find that pre-marriage cohabitation seems to be destabilizing for marriage.

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