The welfare implications of divorce - Stefan Hubner

Econometrics Seminar Series

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Guo Yan

Title: The welfare implications of divorce

Abstract. Divorce costs are one of the fundamental attributes of modern marriage mar-kets. They contribute to the price of the outside option to marriage, and thusco-determine the stability of marriages and the incidence of re-marriages. But de-spite their critical role, divorce costs are not set to optimize any notion of maritalwelfare; rather, they are the result of a multilateral price setting, being influencedby the state, the judicial system, the legal industry, and the married couples them-selves. This setting gives rise to an important question: what would happen to theallocation of marital welfare if we were to set the costs of divorce higher or lower?We answer this question using a unique policy that caused a large, exogenous,and sustained drop of effective divorce costs in the Netherlands. Using a dynamicstructural matching model, we show that there is substantial heterogeneity in theallocation of welfare.