Bargaining on your Spouse: Coasean and Non-Coasean Behaviour Within Marriage

Abstract

Legal structures of divorce settlements are important in how marital division of labour impacts on divorce. They affect not only divorce welfare but also within-marriage allocations. A central question in this context is whether or not intra-marital bargaining is Coasean, where Coasean bargains are characterised by the costless transfer of utility between spouses when property rights are well defined. In Coasean bargains divorces are efficient in the sense that they cannot occur when the joint surplus within marriage is larger than the sum of individual divorcees’ values outside marriage. This is because the spouse with the highest value can always compensate the spouse who wants to leave, and thus persuade her/him to stay. Under non-Coasean bargaining inefficient divorces can occur, due to the absence of costless side-payments. This paper offers a theoretical framework to identify Coasean and non-Coasean behaviour. Whilst an increase in the spouse’s wage always reduces (increases) non-Coasean labour supply (home production), it increases both labour supply and home production under Coasean bargains. Observing labour supply falls after a divorce will again indicate Coasean bargaining. The paper provides a possible explanation for why both males’ preferences for stereotypical work division and females’ preference for non-monetary work aspects persist.