An Equilibrium Analysis of Divorce
The paper provides a general equilibrium analysis in which individual decisions determine the aggregate divorce rate and are influenced by it. Reinforcement is caused by search frictions and a meeting technology whereby remarriage is more likely if the divorce rate is higher, implying multiple equilibria. Welfare tends to be higher at equilibria with more divorce. This result may be reversed if divorce reduces investments in marriage, e.g., children. The important insight that remains is that, in search markets, a legal policy that enforces voluntary contracts need not be socially optimal, because the presence of rents allows the partners to neglect the interest of prospective spouses whom they may meet in the future.
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|Date of creation:||2000|
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