Why Divorce Laws Matter: Incentives for Non-Contractible Marital Investments under Unilateral and Consent Divorce

Abraham L. Wickelgren, Northwestern University

Abstract

The Coase Theorem suggests that married couples will divorce if and only if doing so increases their joint surplus, regardless of the legal rules governing divorce. This does not mean, however, that divorce laws only affect the distribution of rents. Because the distribution of rents affects each spouse's incentives for non-contractible investments, divorce laws can affect the joint welfare of the couple. This paper analyzes the effects of the consent divorce regime and the unilateral divorce regime on incentives for selfish and cooperative marital investments. Using these results, the paper demonstrates how endogenous choice of marriage with non-contractible investments can explain some recent empirical results concerning the effects of the shift from consent divorce to unilateral divorce.