Household Relational Contracts for Marriage, Fertility and Divorce

Fahn, Matthias und Rees, Ray (March 2014): Household Relational Contracts for Marriage, Fertility and Divorce. Discussion Papers in Economics 2014-13

Abstract

This paper applies the theory of relational contracts to a model in which a couple decides whether to marry or cohabit, how many children to have and subsequently whether to stay together or separate. We make precise the idea that cooperation in a household can be supported by self interest. Since the costs of raising children are unequally distributed between partners and children are a household public good, there is a conflict between individually optimal and efficient, i.e. surplus maximising, decisions. Side-payments are used to support cooperation but are not legally enforceable and thus have to be part of an equilibrium. This requires a stable relationship and credible punishment threats. Within this framework, we analyze the effects of policy variables such as the costs of divorce and post-divorce income payments on the interrelationships among the decisions on marriage, fertility and divorce.

• Item Type: Paper
• Keywords: relational contracts, cohabitation, marriage, fertility, divorce
• Faculties: Economics > Munich Discussion Papers in Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: C73, D13, J12, J13, J24
• Language: English

References

[1] Abreu, Dilip, “Extremal Equilibria of Oligopolistic Supergames,” Journal of Economic Theory, 39 (1986), 191-235.

[2] Ahn, Namkee, and Pedro Mira, “A Note on the Changing Relationship Between Fertility and Female Employment Rates in Developed Countries,” Journal of Population Economics, 15 (2002), 667-682.

[3] Alesina, Alberta F., and Paola Giuliano, “Divorce, Fertility and the Value of Marriage,” Harvard Institute of Economic Research Discussion Paper No. 2136, 2007.

[4] Allen, Douglas W., and Margaret Brinig, “Child Support Guidelines and Divorce Incentives,” mimeo, Simon Fraser University and University of Notre Dame, 2010.

[5] Apps, Patricia, and Ray Rees, Public Economics and the Household, Cambridge University Press, 2009.

[6] Becker, Gary S., A Treatise on the Family, Harvard University Press, 1991.

[7] Bellido, Héctor, and Miriam Marcén, “Divorce Laws and Fertility Decisions,” MPRA Paper No. 30243, 2011.

[8] Bradshaw, Jonathan, and Naomi Finch, “A Comparison of Child Benefit Packages in 22 Countries,” Research Report No. 174, London: Department for Work and Pensions, 2002.

[9] Browning, Martin, and Pierre-André Chiappori, “Efficient Intra-Household Allocation: a Characterisation and Tests,” Econometrica, 66 (1998), 1241-1278.

[10] Bull, Clive , “The Existence of Self-Enforcing Implicit Contract,” Quarterly Journal of Economics, 102 (1987), 147-159.

[11] Chiappori, Pierre-André, “Collective Labor Supply andWelfare,” Journal of Political Ecnomy, 100 (1995), 437-467.

[12] Clark, Simon, “Law, Property, and Marital Dissolution,” The Economic Journal, 109 (1999), 41-54.

[13] Fahn, Matthias, and Ray Rees, “Household Relational Contracts for Marriage, Fertility, and Divorce”, Cesifo working paper No. 3655, 2011.

[14] Friedberg, Leora, “Did Unilateral Divorce Raise Divorce Rates? Evidence from Panel Data,” American Economic Review, 88 (1998), 608-627.

[15] Halla, Martin, “The Effect of Joint Custody on Family Outcomes,” Journal of the European Economic Association, 11 (2013), 278-315.

[16] Hart, Oliver, and John Moore, “Contracts as Reference Points,” The Quarterly Journal of Economics, 123 (2008), 1-48.

[17] Immervoll, Herwig, Henrik J. Kleven, Claus T. Kreiner, and Nicolaj Verdelin, “An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries,” , IZA Discussion Paper No. 3965, 2009.

[18] Kaufman, Gayle, “Do Gender Role Attitudes Matter? Family Formation And Dissolution Among Traditional And Egalitarian Men And Women,” in Readings In Family Theory, SAGE Publications, 225-236, 2004.

[19] Konrad, Kai A., and Kjell E. Lommerud, “The Bargaining Family Revisited,” Canadian Journal of Economics, 33 (2000), 471-487.

[20] Levin, Jonathan, “Relational Incentive Contracts,” American Economic Review, 93 (2003), 835-856.

[21] Lundberg, Shelly, and Robert A. Pollak, "Separate Spheres Bargaining and the Marriage Market," Journal of Political Economy, 101 (1993), 988-1010.

[22] Lundberg, Shelly, and Robert A. Pollak, “Efficiency in Marriage,” Review of Economics of the Household, 1 (2003), 153-168.

[23] Lundberg, Shelly, and Robert A. Pollak, “The American Family and Family Economics,” The Journal of Economic Perspectives, 21 (2007), 3-26.

[24] McElroy, Marjorie B., and Mary J. Horney, “Nash-Bargained Household Decisions Making: Toward a Generalization of the Theory of Demand,” International Economic Review, 22 (1981), 333-350.

[25] MacLeod, Bentley W., and James M. Malcomson, “Implicit Contracts, Incentive Compatibility and Involuntary Unemployment,” Econometrica, 57 (1989), 447-480.

[26] Manser, Marylin, and Murray Brown, “Marriage and Household Decision Making: a Bargaining Analysis,” International Economic Review, 21 (1980), 31-44.

[27] Matouschek, Niko, and Imran Rasul, “The Economics of the Marriage Contract: Theories and Evidence,” Journal of Law and Economics, 51 (2008), 59-110.

[28] McLanahan, Sara, "Diverging Destinies: How Children Are Faring under the Second Demographic Transition," Demography, 41 (2004), 607-27.

[29] Ott, Notburga, Intrafamily Bargaining and Household Decisions. Berlin: Springer Verlag, 1992.

[30] Peters, H. Elizabeth, “Marriage and Divorce: Informational Constraints and Private Contracting,” The American Economic Review, 76 (1986), 437-454.

[31] Rasul, Imran, “The Impact of Divorce Laws on Marriage,“ mimeo, University of Chicago and CEPR, 2003.

[32] Rasul, Imran, “Household Bargaining over Fertility: Theory and Evidence from Malaysia,“ Journal of Development Economics, 86 (2008), 215-241.

[33] Rowthorn, Robert, “Marriage and trust: some lessons from economics,“ Cambridge Journal of Economics, 23 (1999), 661-691.

[34] Schmidt, Klaus M., and Monika Schnitzer, “The Interaction of Explicit and Implicit Contracts,“ Economics Letters, 48 (1995), 193-199.

[35] Stevenson, Betsey, “The Impact of Divorce Laws on Marriage-Specific Capital,“ Journal of Labor Economics, 25 (2007), 75-94.

[36] Stevenson, Betsey, and Justin Wolfers, “Marriage and Divorce: Changes and their Driving Forces,“ Journal of Economic Perspectives, 21 (2007), 27-52.

[37] Ulph, David T. "A General Non-Cooperative Nash Model of Household Consumption Behaviour." Working paper 88-205, Department of Economics, University of Bristol, 1988.

[38] Wickelgren, Abraham L., “Why Divorce Laws Matter: Incentives for Non-Contractible Marital Investments under Unilateral and Consent Divorce,“ Journal of Law, Economics & Organization, 25 (2009), 80-106.

[39] Wolfers, Justin, “Did Unilateral Divorce Raise Divorce Rates? A Reconciliation and New Results,“ American Economic Review, 96 (2006), 1802-1820.

[40] Woolley, Frances, "A Non-Cooperative Model of Family Decision Making," TIDI Working Paper 125, London School of Economics, 1988.