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An Economic Model of Child Custody

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  • Francesconi, Marco
  • Muthoo, Abhinay

Abstract

This Paper develops a model of child custody based on an incomplete-contract approach to the allocation of property rights. Because of the presence of transaction costs in marriage, altruistic parents cannot contract upon the investments they make into their children, but can reduce the resulting inefficiencies by determining ex ante the parent who would be allocated custody in case they divorce. We show that: (i) the optimal allocation of custodial rights depends on both preferences and technological factors; (ii) custodial rights can be allocated either to the parent who values the benefits from child welfare more or, vice versa, to the parent with the lowest valuation; (iii) if one parent’s investment is significantly more important than the other parent’s investment, then sole custody is preferred to joint custody and it should be allocated to the parent whose investment is relatively more important; and (iv) if the importance of the parents’ investments is sufficiently similar and if the differences in parents’ valuations of child quality are large, then joint custody is optimal with the low-valuation parent receiving a relatively greater share, because the other parent would invest in the child anyway while the low-valuation parent would be endowed with greater bargaining power. The implications of these results are then interpreted in the context of current custody laws, discussed in relation to empirical estimates of some of the parameters underlying the optimal custody rule, and used to question the skepticism surrounding prenuptial contracts.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4054.

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Date of creation: Sep 2003
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Handle: RePEc:cpr:ceprdp:4054

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Keywords: child custody; incomplete contracts; negotiations; parental altruism; parental investments; terms of divorce;

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References

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Citations

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Cited by:
  1. Christine Hauser, 2008. "Child Support Enforcement and Children's Consumption," 2008 Meeting Papers 630, Society for Economic Dynamics.
  2. Martin Halla, 2004. "Unterhalt, Obsorge und Scheidungsanwälte: Eine ökonometrische Untersuchung der einvernehmlichen Scheidung in Österreich," Economics working papers 2004-10, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Atteneder, Christine & Halla, Martin, 2007. "Bargaining at Divorce: The Allocation of Custody," IZA Discussion Papers 2544, Institute for the Study of Labor (IZA).
  4. Melissa Tartari, 2006. "Divorce and the cognitive achievement of children," 2006 Meeting Papers 32, Society for Economic Dynamics.
  5. Helmut Rainer, 2005. "Should We Write Prenuptial Contracts?," Discussion Paper Series, Department of Economics 200514, Department of Economics, University of St. Andrews.
  6. Nunley, John M. & Seals Jr., Richard Alan, 2011. "Child-custody reform, marital investment in children, and the labor supply of married mothers," Labour Economics, Elsevier, vol. 18(1), pages 14-24, January.
  7. Domenico Tabasso, 2011. "With or Without You: Hazard of Divorce and Intra-household Allocation of Time," Melbourne Institute Working Paper Series wp2011n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  8. Nunley, John M. & Seals, Alan, 2009. "Child-Custody Reform and Marriage-Specific Investment in Children," MPRA Paper 16313, University Library of Munich, Germany.

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