What happens when divorce laws switch from mutual consent to a unilateral regime?

Interesting paper by Raquel Fernández and Joyce Cheng Wong.

One is always looking for certain natural experiments to check the impact. Change in policy regime is like a natural experiment. So, in this paper authors look at the impact when divorce regime changed in US. Earlier, regime was mutual consent which meant approval for both partners was need. Then it changed to unilateral where just one party had to agree. What was the socio-economic impact of such changes?

During the 1970s the US underwent an important change in its divorce laws, switching from mutual consent to a unilateral divorce regime. Who benefitted and who lost from this change? To answer this question we develop a dynamic life-cycle model in which agents make consumption, saving, labor force participation (LFP), and marriage and divorce decisions subject to several shocks and given a particular divorce regime. We calibrate the model using statistics relevant to the life-cycle of the 1940 cohort. Conditioning solely on gender, our ex ante welfare analysis finds that women would fare better under mutual consent whereas men would prefer a unilateral system. Once we condition not only on gender but also on initial productivity, we find that men in the top three quintiles of the initial productivity distribution are made better off by a unilateral system as are the top two quintiles of women; the rest prefer mutual consent. We also find that although the change in divorce regime had only a small effect on the LFP of married women in the 1940 cohort, these effects would be considerably larger for a cohort who lived its entire life under a unilateral divorce system.

Insurance and marriage:

From an insurance perspective, it is easy to see that, ceteris paribus, a mutual consent divorce regime provides more income insurance than a unilateral divorce regime. Under mutual consent, the reluctant spouse must be compensated in order to obtain a divorce. A unilateral regime, on the other hand, does not impose this restriction. It allows the agent to walk away but this greater freedom may come at additional costs, ranging from being the partner who is left to the potential costs arising from endogenously changed marriage patterns and household choices. Who benefits from the tradeoffs provided by the divorce regimes is our primary question of interest.

Further findings and model in detail:

Since our model has two important sources of heterogeneity– gender and productivity – we conduct two welfare analyses. The first is an ex-ante approach in which agents are distinguished only by their gender. It thus answers the question: conditioning solely on your gender, would you prefer to live in a world in which divorce is unilateral or in one that requires both spouses’ consents? The second analysis is also ex ante but conditions not only on gender but also on the agent’s initial productivity endowment. We thus ask: if you knew both your gender and expected wage profile over your life-cycle, would you prefer a regime that makes divorce easier or harder?

Our analysis generates several interesting findings. First, we find that although the change in divorce regime generated a relatively small increased in married women’s LFP for the 1940 cohort (a result which is in line with most of the literature in this area, e.g., Lundberg and Rose (1999), Parkman (1992), Stevenson (2008)), the consequences would  have been be substantially amplified for a cohort which has always lived under a unilateral divorce system. Our analysis indicates that this result is mostly driven by an optimal response to the increased risk of divorce in face of the conflicting preferences of spouses vis a vis consumption smoothing rather than by the change in the composition of married couples. 

Second, conditioning solely on gender, our ex ante welfare analysis finds that women would fare better under mutual consent whereas men would prefer a unilateral system.  To understand this result note that, for a given pattern of marriages, the welfare impact of being granted the ability to walk away from one’s spouse without incurring additional compensation costs depends on the frequency with which an agent may wish to do so relative to her/his spouse and how the agent fares when divorced relative to married. Since, ceteris paribus, women earn less than men and also bear a larger share of the cost of raising children upon divorce, their welfare losses from divorce are larger and thus they are more  likely to benefit from a mutual consent regime. Men, on the other hand, are more likely to gain from a unilateral divorce regime although this is not ensured ex ante as the greater ease of divorce also exposes them to greater uncertainty which, ceteris paribus, is welfare reducing. Marriage patterns, of course, will themselves react to the welfare consequences of easier divorce. The greater instability of marriage leads women to become considerably more reluctant to marry whereas men become more willing.  Overall, marriage rates fall, implying that a greater proportion of women are willing to forego some of the potential consumption insurance provided by marriage in favor of decreasing their vulnerability to becoming a divorced woman with young children, a probability that is higher under a unilateral system even with after taking into account the endogenous response of household formation to the change in the divorce regime.

Third, once ex-ante welfare is conditioned not only on gender but also on initial productivity, we find significant differences in preferences along this dimension. Men in the top three quintiles of the initial productivity distribution are made better off by a unilateral system as are the top two quintiles of women; the remainder prefer mutual consent. The preceding explanation gives much of the intuition behind this result. Ex ante richer women and men value more the freedom of walking away from an unsatisfactory marriage than its insurance benefits. Even if they are left by their spouse, they fare better in the divorced state than their poorer counterparts. Poorer individuals are hit hardest by the loss of insurance and economies of scale from marriage, leading poorer women in particular to become more averse to marriage.

Interesting findings..

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