Three essays on household formation and dissolution
Creators: name: Yang, Jie (Jessy)
Publisher: name: Université d'Ottawa / University of Ottawa
Year: 2004
Subjects: subject: Economics, General.

description: Chapter one: a theory of rational marriage and divorce . The decisions to marry and, possibly, to divorce are amongst the most important economic decisions that individuals make during their life. The partner you marry is of great significance for determining your material prosperity. However, not all marriages are durable. Given that divorce is both common and costly, there exists a puzzling question: why do individuals get marred when with high probability their marriage may not work out? Unlike much previous work in which household dissolution is explained by imperfect information, this paper develops a theory of household dynamics in a world of perfect information. Rather than relying on such considerations, the analysis in this thesis highlights the importance of public goods consideration in influencing individuals decision-making with respect to marriage and divorce. A two-period non-cooperative game is considered in which individuals allocate their labor between the outside labour market and household public good production. It is shown that individuals may rationally choose to marry even when they fully anticipate a subsequent decision to divorce. Married individuals benefit from economies of scale in household public good production, and may therefore choose to enter into a 'starter' marriage. However, if divorce is very costly, this may discourage individuals from forming a 'temporary' household. Chapter two: rational marriage and divorce with remarriage. This paper extends the first chapter by introducing the matching considerations as well as the possibility of remarriage. In contrast to Becker (1991), it is shown that if individuals differ only in their outside market opportunities then positive assortative matching is not always optimal and negative assortative matching is not always non-optimal when traits are complements. Strikingly, individuals may choose to wait in marriage before eventually divorcing in the hope of obtaining a 'better fit'. The importance of the asset division rules upon divorce are highlighted: appropriately chosen rules not only promote stable marriage but also discourage 'temporary' marriage. Chapter three: an empirical investigation of the impact of public goods and public policies on household dynamics. This paper is an empirical investigation into the determinants of marriage and divorce. It uses the Survey of Labour Income Dynamics (SLID) Panel data set to examine the role of public goads and public policy in household formation and dissolution. Three types of public goods are identified: assets (like home ownership), children, and companionship. We look at the role of home ownership in the decisions to marry and divorce, and find that ownership prior to marriage tends to reduce the probability of marriage while ownership after marriage tends to reduce the probability of divorce. The presence of children tends, by and large, to reduce the probability of divorce. Companionship is important to maintain stability within a marriage: we found that spouses who worked in different shifts are more likely to divorce relative to others, ceteris paribus. Overall, we find much support for the idea that public goods serve as an attraction for marriage; while their deterioration leads to divorce. On the policy front, we examine the impact of the 1997 Child Support Guidelines on marriage and divorce. While their effect on marriage is negligible, evidence suggests that divorce is now more likely as a result of the implementation of these guidelines.