Property Division Laws: The Effects on Labor Supply and Household Bargaining

Abstract

This paper provides a framework for analyzing the impact of a change in property division law-a natural experiment that affects spouses' bargaining power in a discrete manner-on household decision making. I focus on the 2000 House of Lords decision (White v. White), which led to a more equitable division of assets between divorcing spouses in England and Wales, and estimate its effect on the intrahousehold resource allocation rule using the collective labor supply model. I show that this effect can be expressed as an equivalent transfer of household nonlabor income. The equivalent transfer concept is then used to demonstrate that the unobserved components of the underlying decision process (the individual preferences and the household resource sharing rule) can be identified nonparametrically from changes in observed labor supply. Empirical analysis using the British Household Panel Survey (BHPS)for 1991-2006 reveals that married women reduced their labor supply after the law change. I also find some evidence that the household resource allocation process changed in their favor.