Abstract
In this paper, we use a two-period one-to-one matching model with incomplete information to examine the effect of changes in divorce costs on marital dissolution. Each individual who has a nontransferable expected utility about the quality of each potential marriage decides whether to marry or to remain single at the beginning of the first period. Individuals married in the first period learn the qualities of their marriages at the beginning of the second period and then decide whether to stay married or to unilaterally divorce. We show that, for any society, there exist matching environments where the probability of the marital dissolution does not reduce divorce costs under gender-optimal matching rules. In such environments, an allocation effect of divorce costs with an ambiguous sign outweighs an incentive effect that is always negative. We also show that these results may also arise under stable matching rules that are not gender optimal.
Highlights
An unsettled debate in the economics literature is about the role of divorce laws on the probability of marital dissolution, focusing in particular on the big shift in divorce behavior in the United States (US) in the last five decades
We first observe that the probability of marital dissolution under any given matching is nonincreasing in divorce costs
The above proposition follows from (1), (3) and (5) together with the facts that ∂ θ(c)/∂c ≤ 0 and that dFji (θ)/dθ ≥ 0 for all i ∈ N and j ∈ AN (i). We call this effect, which works in search theoretic models, the ‘’incentive effect” of divorce costs; since the higher the divorce costs, the higher the incentive for the marriages that were formed in the first period to continue into the second period as well
Summary
An unsettled debate in the economics literature is about the role of divorce laws on the probability of marital dissolution, focusing in particular on the big shift in divorce behavior in the United States (US) in the last five decades. While Peters found no impact of unilateral divorce laws on divorce rates between 1975 and 1978 [1], Allen showed, using the same data set, significant and permanent effects when he monitored for geographical differences in divorce propensities [2]. Gruber found, using the US census data from 1960, 1970, 1980, and 1990, a similar positive effect of the unilateral divorce laws on the stock of divorced women and men [4]. Using longitudinal data on divorce rates in large samples of European countries, González and Viitanen [5] and Kneip and Bauer [6] showed that the results in the literature with significant positive effects of unilateral divorce laws are not pertinent to the US
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