Abstract
In most Western economies, the flourishing of the Welfare State has coincided with a decline of the role of the family: divorce has been introduced, and the number of married couples has decreased relative to that of cohabiting ones. We argue that divorce is a costly process and that its likelihood may be overestimated by limitedly rational agents; hence, it may act as a reason for the reduction of the number of marriages and the increase of cohabitation. We also show that the model's predictions are more in line with the stylised facts than those coming from a standard model with full rationality.
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