The Market For Divorce

Under a fault-based divorce law, property rights are assigned to the party wishing to stay married. In this case, the spouse who wishes to get a divorce can compensate10 the other spouse to convince him or her to agree to a divorce. If the gains of divorce for the spouse wishing to get divorced are greater than the gains of staying married for the spouse that wishes to stay married, the surplus that comes from divorce can be transferred to the spouse wishing to stay married to compensate that spouse for loss caused by the divorce. In the case of a no-fault based divorce law, property rights are assigned to the party wishing to get a divorce. In this case, the couple will stay married only if the joint gains of marriage exceed the joint gains of divorce. If the spouse that wishes to stay married experiences greater gains from marriage than the spouse that wishes to get divorced experiences by getting divorced, then the spouse that wishes to stay married should be able to transfer the surplus from staying married to the other spouse to compensate them for staying married. This compensation can come in pecuniary and non-pecuniary forms.11 In this way, regardless of the assignment of property rights, economic efficiency should be obtainable.

However, the Coase Theorem does not hold in all cases due to one important factor: the presence of public goods-children.12 The result is that inefficient divorces occur under a no-fault divorce law. Under a no-fault divorce law, property rights are assigned to the party that wishes to get divorced, and thus if there are joint gains from marriage, the party that wishes to stay married must transfer some of the surplus to the party that wishes to get divorced in order to compensate them for staying married. However, some of the utility gains of marriage come in the form of children, a public good shared by both spouses. Any surplus of marriage that is a result of children13 cannot be transferred to the other spouse to compensate them for staying married. Since all of the surplus of the gains from marriage cannot be transferred to serve as compensation, divorce can occur even when there are joint gains from marriage, an economically inefficient outcome.14 In the market model of divorce, the effect of the adoption of a no-fault divorce law is to shift out the demand curve.15 Due to the lack of transferability of the surplus derived from children, there is an overall increase in the demand for divorce due to market entry. At any given level of utility, more marriages will end in a divorce.16

Other aspects of the legal statues regulating divorce also affect the position of the divorce demand curve. Laws regulating divorce focus on four main points: 1) distribution of current wealth, 2) distribution of future wealth, 3) responsibility for the care of children, and 4) monetary responsibility for children.17 Legal standards in regards to these issues affect the utility comparisons made in determining the gains of divorce. The distribution of current and future wealth after divorce affects the utility of divorce for each party. The larger the share of current and future wealth that a spouse receives, the more attractive divorce is for that spouse.18 The division of responsibility for taking care of children after divorce also has bearing on the utility comparisons for each spouse. Despite recent moves toward gender-neutral custody decisions,19 women more often receive custody of the children. Assuming that both parties want to have custody of the children, the probability of receiving custody impacts the utility of divorce for each party, and thus their demand for divorce. The same is true for monetary responsibility for children after divorce. The more a spouse must pay in childcare, the less desirable divorce becomes. All of these legal regulations make divorce more or less desirable and thus cause market entry or exit, affecting the position of the demand curve and thus the divorce rate.

Be Sure to Continue to Page 3 of "The Market For Divorce".