DP10047 Free to Leave? A Welfare Analysis of Divorce Regimes

Author(s): Raquel Fernández, Joyce Cheng Wong
Publication Date: June 2014
Keyword(s): divorce, gender inequality, household bargaining, life-cycle behavior
JEL(s): D130, J12, J16, K36
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10047

During the 1970s the US underwent an important change in its divorce laws, switching from mutual consent to a unilateral divorce regime. Who benefited and who lost from this change? To answer this question we develop a dynamic life-cycle model in which agents make consumption, saving, labor force participation (LFP), and marriage and divorce decisions subject to several shocks and given a particular divorce regime. We calibrate the model using statistics relevant to the life-cycle of the 1940 cohort. Conditioning solely on gender, our ex ante welfare analysis finds that women would fare better under mutual consent whereas men would prefer a unilateral system. Once we condition not only on gender but also on initial productivity, we find that men in the top three quintiles of the initial productivity distribution are made better off by a unilateral system as are the top two quintiles of women; the rest prefer mutual consent. We also find that although the change in divorce regime had only a small effect on the LFP of married women in the 1940 cohort, these effects would be considerably larger for a cohort who lived its entire life under a unilateral divorce system.