Relational contracts for household formation, fertility choice and separation

Fahn, Matthias; Rees, Ray; Wuppermann, Amelie

doi:10.1007/s00148-015-0580-x

Cited by 7 publications

(7 citation statements)

References 34 publications

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“…As separation costs increase, the probability of relationship breakdown falls: a bigger negative shock to relationship quality is needed to offset the gains from the relationship. This increases the expected payoff to relationship-specific investments, serving as a commitment device (Becker, Landes, and Michael, 1977;Matouschek and Rasul, 2008;Fahn, Rees, and Wuppermann, 2016). The implication is that increasing the costs of relationship breakdown will increase relationship-specific investments such as having children or becoming a home owner.…”

Section: Separation Costsmentioning

confidence: 99%

“…Property division laws can also affect the incentives to make relationship-specific investments by solving (or creating) an investment hold-up problem (Fisher, 2012;Fahn, Rees, and Wuppermann, 2016). Key to this mechanism is that some relationship-specific investments are asymmetric.…”

Section: Relationship-specific Investmentsmentioning

confidence: 99%

“…We therefore expect fertility, specialization and other relationship-specific investments to increase among affected couples. This mechanism has been empirically evaluated by considering the effects of a reduction in the generosity of German alimony laws for married mothers, finding a reduction in fertility (Fahn, Rees, and Wuppermann, 2016). The mechanism has not been examined for unmarried couples, with the existing research focused on labor market outcomes (Chiappori et al, 2016; Goussé and Leturcq, 2018).…”

Section: Relationship-specific Investmentsmentioning

confidence: 99%

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The Consequences of Extending Equitable Property Division Divorce Laws to Cohabitants

et al. 2019

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Since the 1970s, marriage rates have declined throughout the developed world and unmarried cohabitation has become increasingly important. Despite the growing importance, unmarried couples face a wide range of legal frameworks if their relationship breaks down. For example, in many US states and in England and Wales family law does not cover unmarried couples. In contrast, in Australia, New Zealand, and parts of Canada, unmarried couples face the same property division regime as married couples. We examine the effects of the extension of the Australian Family Law Act to unmarried couples, focusing on how being subject to equitable property division laws affects the behaviour of intact couples. Before 2009, laws determining post-separation financial settlements for unmarried couples varied between states and territories, ranging from marriage-equivalence to far more restrictive provisions. In 2008, the provisions of the Family Law Act 1975 (Cth) were extended to unmarried couples, harmonizing the legal regime across the country with effect from 1 March 2009. We use this natural experiment to identify the causal effect of being subject to marriage-equivalent equitable property division laws. We find that existing couples are more likely to make relationship-specific investments after being exposed to laws enabling the equitable redistribution of property in the event of relationship breakdown. In affected couples we find that men increase their employment and women increase time spent on housework. Couples have more children and are more likely to become home owners. When examining self-reported life satisfaction, we find similar effects for men and women, with an increase in financial satisfaction offset by a reduction in partner satisfaction. These results demonstrate the causal effect of property division laws on relationshipspecific investments and demonstrate that legal approaches aimed at sharing the financial burden of relationship breakdown can have important incentive effects for existing couples. This means that a potentially unintended consequence of these laws is that they make unmarried couples behave more like married couples.

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Section: Separation Costsmentioning

confidence: 99%

Section: Relationship-specific Investmentsmentioning

confidence: 99%

Section: Relationship-specific Investmentsmentioning

confidence: 99%

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The Consequences of Extending Equitable Property Division Divorce Laws to Cohabitants

et al. 2019

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Section: Relationship-specific Investmentsmentioning

confidence: 99%

The Consequences of Extending Equitable Property Division Divorce Laws to Cohabitants

et al. 2019

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“…On the other extreme, Fahn and Rees (2014) consider a complete inability to commit, even within a period, and model household decision-making in the context of relational contracts. In their setting cooperation, and hence efficient allocation, occurs only when such actions are individually rational at each point in time, given the punishment strategies embedded in the implicit contract.…”

Section: Introductionmentioning

confidence: 99%

Efficiency of Family Bargaining Models with Renegotiation: The Role of Transferable Utility across Periods

Gugl

Welling

2017

Studies in Microeconomics

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In dynamic family bargaining models, it is often assumed, for simplicity, that spouses have transferable utility as well as identical and constant marginal rates of intertemporal substitution. It has been argued that as long as spouses are at an interior solution, renegotiation does not hinder efficiency. We show that identical and constant marginal rates of intertemporal substitution (i.e., transferable utility across periods) are the source of this efficiency result. Even at an interior solution, renegotiation can cause inefficiency if marginal rates of intertemporal substitution are not constant. Our model is the first to both identify this source of inefficiency in a bargaining model in which the threatpoints of later periods are determined endogenously and demonstrate that there is no one-size-fits-all policy regulating divorce that can restore efficiency when couples are allowed to differ in their initial wage rates and/or preferences.

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Relational contracts for household formation, fertility choice and separation

Cited by 7 publications

References 34 publications

The Consequences of Extending Equitable Property Division Divorce Laws to Cohabitants

The Consequences of Extending Equitable Property Division Divorce Laws to Cohabitants

The Consequences of Extending Equitable Property Division Divorce Laws to Cohabitants

Efficiency of Family Bargaining Models with Renegotiation: The Role of Transferable Utility across Periods

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