Marriage and divorce: informational constraints and private contracting

Abstract

The relationship between divorce rates in the United States and laws regulating divorce are analyzed using data from a special Current Population Survey undertaken in 1979 with particular reference to the adoption by many states of no-fault divorce laws. The author utilizes a contract-theoretic framework to examine the impact of both legal and informational constraints on several aspects of the marriage relationship: 1) the probability of divorce; 2) compensation at divorce (i.e. the terms of the divorce settlement); 3) the probability of entering marriage; and 4) incentives for investment in marriage-specific capital. Two different models are developed. The first assumes that ex post information about the value of each spouses opportunites at divorce is symmetric and that since divorce would only occur if the joint benefits outweigh the joint costs the law has no effect on the divorce rate. The second model asserts that the existence of asymmetric information results in a fixed wage marriage contract and that divorce would be higher in states that allow unilateral divorce. The evidence supports the first of these hypotheses. (EXCERPT)

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