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Household Relational Contracts for Marriage, Fertility and Divorce

39 Pages Posted: 6 Dec 2011  

Matthias Fahn

Ludwig Maximilian University of Munich - Faculty of Economics

Ray Rees

Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 30, 2011

Abstract

This paper applies the theory of relational contracts to a model in which a couple decides whether to marry or cohabit, how many children to have and subsequently whether to stay together or separate. We make precise the idea that cooperation in a household can be supported by self interest. Since the costs of raising children are unequally distributed among partners, there is a potential conflict between individually optimal and efficient, i.e. surplus maximizing, decisions. Side-payments are used to support cooperation but are not legally enforceable and thus have to be part of an equilibrium. This requires a stable relationship and credible punishment threats. Within this relational contracts framework, we analyze the effects of policy variables such as rights of access to children post-separation and wealth division/alimony rules, as well as the legal costs of divorce, on the interrelationships among the decisions on marriage, fertility and divorce.

JEL Classification: C730, D130, J120, J130, J240

Suggested Citation

Fahn, Matthias and Rees, Ray, Household Relational Contracts for Marriage, Fertility and Divorce (November 30, 2011). CESifo Working Paper Series No. 3655. Available at SSRN: https://ssrn.com/abstract=1968855

Matthias Fahn

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Ray Rees (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Munich, D-80539
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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