ARTICLE IN PRESS

European Economic Review 53 (2009) 93–106

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European Economic Review

journal homepage: www.elsevier.com/locate/eer

A theory of rational marriage and divorce

Vicky Barham, Rose Anne Devlin , Jie Yang
Department of Economics, University of Ottawa, P.O. Box 450, Stn. A, Ottawa, Ontario, Canada K1N 6N5

a r t i c l e in fo abstract

Article history: Despite high rates of cohabitation before marriage, and considerable efforts invested in
Received 10 March 2005 the search for a life partner, a high number of marriages end in divorce. This paper
Accepted 15 February 2008 develops a model of household formation and dissolution in which it may be rational for
Available online 7 March 2008
individuals to marry, fully anticipating that they will subsequently divorce. Economies
JEL classification: of scale associated with living as a couple rather than in two separate households
J12 provide an incentive to marry; problems with free riding in the provision of household
H41 collective goods may lead to divorce. Marriages which involve partners who are similar,
in tastes or in their productive capacities, and in which private goods are equally shared,
Keywords: are the most likely to be stable. In contrast, marriages which involve very disparate
Marriage and divorce
partners, or which share the fruits of market labor very unequally between the partners,
Marital public goods
are more likely to be shortlived and end in divorce.
Intra-household allocation
& 2008 Elsevier B.V. All rights reserved.

1. Introduction

It is a fact that most people marry at some point in their lives; it is also a fact that almost half of all marriages end in
divorce. And given that divorce is a relatively costly process, the apparent eagerness with which rational individuals enter
into matrimony must be seen as somewhat puzzling. One possible explanation is that the individuals involved do not have
adequate information about their partners. However, while imperfect information is no doubt an important part of the
story—and is certainly the key hypothesis underlying many search-based models of the marriage market (e.g., Shimer and
Smith, 2000; Roth, 1996)—this is somewhat facile as an explanation. These days, many partners live together before
marriage, which presumably allows the interested parties to obtain better information about what married life might be
like and so reduce the likelihood of mismatches ending in divorce. Moreover, to argue that the main reason for divorce is
the belated discovery that one has chosen the wrong partner effectively implies that the often considerable efforts which
most individuals devote to the process of identifying a suitable potential mate are relatively inefficient.
An alternative approach is to presume that rational individuals may have good reason to enter into the state of
matrimony, knowing full well that it may not be forever. Just as individuals purchase ‘starter homes’, with the intention of
eventually trading up to something larger and more luxurious, individuals might perhaps enter into ‘starter marriages’.
After all, there are clearly economies of scale associated with living as a couple rather than in two separate households. To
the extent that married couples are able to accumulate intra-household public goods faster than can single individuals,
entering into marriage may be worthwhile even if one ultimately ends up divorced.1 This intuition is the foundation for the
analysis developed in this paper.

 Corresponding author. Tel.: +1 613 562 5800; fax: +1 613 562 5999.
E-mail address: radevlin@uottawa.ca (R.A. Devlin).
1
Indeed, the importance of these considerations is undoubtedly one of the key reasons for which many unattached single individuals (e.g., university
students) choose to share their living quarters rather than to rent studio apartments. It is also worthwhile noting that many jurisdictions use different

0014-2921/$ - see front matter & 2008 Elsevier B.V. All rights reserved.
doi:10.1016/j.euroecorev.2008.02.002
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94 V. Barham et al. / European Economic Review 53 (2009) 93–106

The notion that the existence of shared goods within the family may provide an incentive for household formation was
first stressed by Becker (1973, 1974, 1991). However, his focus was on developing the notion of comparative advantage in
household production versus market activities to explain the relatively different roles traditionally associated with
husbands and wives in the nuclear family. More recently, this early literature has been criticized for approaching this
allocation problem non-strategically. As observed by Chiappori (1992), modelling the household as though it were a single
individual is inappropriate because it falls short with respect to the criterion of methodological individualism:
Microeconomic models generally treat all participants in an economy as decision-makers. Moreover, because the
household, rather than the individual members of the household, is viewed as the decision-maker, this means that nothing
can be said about its internal decision-making process. Contributions by Manser and Brown (1980), McElroy and Horney
(1981), Lundberg and Pollak (1993, 1994), Apps and Rees (1997), Chiappori (1988a,b, 1997), Bourguignon and Chiappori
(1992), Browning et al. (1994), Chiappori et al. (2002), Konrad and Lommerud (2000), and Chen and Woolley (2001),
amongst others, have provided considerable theoretical and empirical insight into how families allocate their resources,
and have clearly demonstrated that strategic considerations play a crucial role in intra-household resource allocation.
The insights generated by the literature on intra-household resource allocation naturally suggest that strategic
considerations may also have an important influence on the more general issue of household formation and dissolution.
The analysis developed below highlights the importance of strategic interaction in determining marital stability, and shows
that there is a critical and complex linkage between the efficiency of the sharing of the production of household public
goods and the way in which changes in the value of crucial parameters—such as the market wage of each of the
partners—may contribute to destablizing the marriage. A key lesson to be drawn from our analysis is that marriages which
involve partners who are similar, in tastes or in their productive capacities, and in which private goods are equally shared,
are the most likely to be stable. In contrast, marriages which involve very disparate partners, or which share the fruits of
market labor very unequally between the partners, are more likely to be shortlived and end in divorce.

2. The model

We consider households consisting either of unattached individuals, or couples.2 There are two consumption goods: A
composite private good (X) and a local public good ðGÞ. The utility function U i ðX i ; GÞ is concave and is assumed to have
continuous first and second order derivatives with respect to each argument.
The local public good within the household is a quasi-durable good and can be interpreted as a composite collective
good, representing both the physical assets—the family home, the living room furniture, home-cooked meals—and the
non-physical assets, such as companionship, which provide services to both members of a given household. The amount
available in period t is denoted by Gt , and is determined as a function of the depreciated stock of this good, plus additional
investment in period t by the member(s) of the household. More precisely
Gt ¼ dGt1 þ f ðkmt ; kwt Þ,
where d denotes the net rate of depreciation, 0odo1, and kmt (kwt ) the investment of the male member (female member)
in the production of the collective good in period t. We assume that f ðkmt ; kwt Þ is a well-behaved concave production
function, and that f ðkmt ; 0Þ; f ð0; kwt Þ40, that is, it is not essential that both members of the household invest in the
production of the collective good for there to be a positive level of production.
In every period men and women are endowed with a fixed amount of labor, L, which they must allocate either to
investment in the collective good within the household, or to acquiring the composite private good. Each household
member decides non-cooperatively how much labor to invest in production of the collective good; the residual labor
supply is then exchanged for the composite private good. Each member’s outside productivity is denoted by ui ði ¼ m; wÞ.
For simplicity, we assume that the opportunity cost of household production depends only on the family structure, and not
on the identity of the spouse. We assume that labor-market earnings are pooled within the household, so that the total
amount of the private good available for consumption in period t can be expressed as
X t ¼ um ðL  kmt Þ þ uw ðL  kwt Þ.
As we are principally interested in the dynamics of household formation rather than in the intra-household allocation of
consumption, we assume that the division of X t between the members of the household is exogenously determined.
Consequently, denoting by ym ðyw Þ the share of the male member (female member) of the household, ym þ yw ¼ 1, we can
express the private good consumption of both household members in period t as

X mt ¼ ym ½um ðL  kmt Þ þ uw ðL  kwt Þ,

X wt ¼ yw ½um ðL  kmt Þ þ uw ðL  kwt Þ.

(footnote continued)
rules to divide property between former partners when the concerned parties were formally married versus when there was a non-officialized
relationship.
2
This model is accepting of both common-law and same-sex relationships. The only real requirement is that there is a legal framework which
determines the share of household assets that each partner would receive upon divorce.
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V. Barham et al. / European Economic Review 53 (2009) 93–106 95

Obviously, in single person households private good consumption is trivially determined once the individual has decided
how much labor to allocate to the provision of the collective good. This completes our description of intra-household
resource allocation.
We model household formation and dissolution as a two-period game. At the beginning of period one, each participant
in the economy is offered a partner, and both potential spouses must choose whether or not to marry. Marriage requires
mutual consent. If they decide to marry, then the levels of private and collective good consumptions are determined
according to the procedure outlined above. If they remain single, each participant must provide both the collective good
and the private good for him or herself.
At the end of the first period, the spouses decide whether to remain married or to divorce. If they divorce, each receives a
proportion li ; i ¼ m; w of the collective good, where lm þ lw p1.3 Note that we are assuming that the division of family
assets is prescribed by Family Law, and that individuals do not have the capacity to bargain around these rules. In the case
of unequal earning power, a support award for the lower-earning spouse, expressed as a proportion of the higher earner’s
market earnings, rather than as a dollar amount, may also be imposed by the law. Divorce can be imposed by either partner,
and so couples remain married by mutual consent. Divorced individuals cannot remarry, but live as single individuals in
period two. Given the endogenously determined household structure at the beginning of period two, household members
again decide (non-cooperatively in the case of a married couple) how much labor to allocate to the production of the
collective good, and how much to allocate to labor-market activity. Private good consumptions are determined in the same
way as in period one. The game ends after two periods.

3. Equilibrium analysis

3.1. Period two: collective good production in a one person household

The equilibrium concept used to solve this game is that of subgame perfect Nash equilibrium. Consequently, to analyze
individual decision making, we first consider period two decision making in both one person and two person households. If
at the outset of period two the household consists of a single person, then the decision problem is very straightforward:
Available labor power must simply be allocated between domestic production and acquisition of the composite private
good, in a utility-maximizing fashion. At the beginning of period two, the decision problem facing the never-married
individual can therefore be expressed as

max U i ðxi ; G2 Þ ¼ U i ðui ðL  ki2 Þ; dG1 þ f ðki2 ; 0ÞÞ,

ki2

where we have for convenience written f ðki ; 0Þ rather than distinguishing between f ðkm ; 0Þ and f ð0; kw Þ. Note that G1 here
denotes the existing stock of the collective good available to the single individual. At an optimum it must be true that

ui U ix þ U iG f k2 p0, (1)

ki2 X0, (2)

ki2 ½ui U ix þ U iG f k2  ¼ 0 (3)

and we denote by e ki2 the solution to (1)–(3). Notice that the reference level of utility for a never-married single person is
then U i ðui ðL  e
ki2 Þ; dG1 þ f ðe
ki2 ; 0ÞÞ. This utility level depends positively on the existing stock of the quasi-durable good.
For divorced individuals, the decision problem is slightly different than for never-marrieds, in particular if a support
payment must be made. Assuming for convenience that the divorced male earns more than the divorced female, their
respective second-period decision problems and associated first-order conditions can be expressed as

max U m ðX m ; G2 Þ ¼ U m ðum ðL  km2 Þð1  yD Þ; dlG1 þ f ðkm2 ; 0ÞÞ  um U m m

x ð1  yD Þ þ U G f km p0, (4)
km2

km2 X0, (5)

km2 ½um U m m
x ð1  yD Þ þ U G f km  ¼ 0, (6)

max U w ðX w ; G2 Þ ¼ U w ðuw ðL  kw2 Þ þ um ðL  km2 ÞyD ; dð1  lÞG1 þ f ðkw2 ; 0ÞÞ  uw U w w

x þ U G f kw p0, (7)
kw2

kw2 X0, (8)

kw2 ½uw U w w
x þ U G f kw ¼ 0, (9)

3
One reason for which the sum may be less than one would be if the collective good were not a physical asset.
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96 V. Barham et al. / European Economic Review 53 (2009) 93–106

D D
where yD denotes the proportion of the male’s income that is paid as support. We denote by km2 ; kw2 the solutions to
(4)–(6), (7)–(9), respectively.

3.2. Period two: collective good production in a two person household

Recall that, within marriage, each partner takes an independent decision regarding the level of their investment in the
collective good knowing that labor-market income will be pooled and divided according to pre-determined shares. Unlike
the single person household, however, decision-making by spouses within marriage is strategic: The decision regarding
how much effort to contribute to the production of the shared good takes into account the anticipated contribution of the
partner. At the beginning of period two the decision problem facing the individual can therefore be expressed as

max U i ðX; G2 Þ ¼ U i ðyi ðum ðL  km2 Þ þ uw ðL  kw2 ÞÞ; dG1 þ f ðkm2 ; kw2 ÞÞ.
ki2

At a Nash equilibrium in which both partners potentially contribute to the production of the local public good it must be
true that

ym um U m m
x þ U G f km p0, (10)

km2 X0, (11)

km2 ½ym um U m m
x þ U G f km  ¼ 0, (12)

yw uw U w w
x þ U G f kw p0, (13)

kw2 X0, (14)

kw2 ½yw uw U w w
x þ U G f kw  ¼ 0. (15)
We denote a solution to this system of equations by the ordered pair ðb km2 ; b
kw2 Þ. In general, both interior and corner
solutions are possible. If there is a 50–50 sharing rule for the composite private good, and the production function is such
that the marginal productivity of effort is always equal for both members, then there will be a corner solution whenever
um auw : The individual with the higher wage specializes in market work. Note that a Nash equilibrium exists in the
household production subgame.
We now characterize a Pareto efficient outcome. Following Chiappori (1992), the Pareto efficient outcome within a two-
member family can be solved through the following program:

max U m ðX mt ; GÞ þ mU w ðX wt ; Gt Þ
kmt ;kwt

subject to

X mt ¼ ym ½um ðL  kmt Þ þ uw ðL  kwt Þ,

X wt ¼ yw ½um ðL  kmt Þ þ uw ðL  kwt Þ,
where m is the weighting factor. The first order conditions are

kmt : ym vm U m m w w
x þ U G f km þ mðyw vm U x þ mU G f km Þp0, (16)

kmt X0, (17)

kmt ½ym vm U m m w w
x þ U G f km þ mðyw vm U x þ mU G f km Þ ¼ 0, (18)

kwt : ym vw U m m w w
x þ U G f kw þ mðyw vw U x þ mU G f kw Þp0, (19)

kwt X0, (20)

kwt ½ym vw U m m w w
x þ U G f kw þ mðyw vw U x þ mU G f kw Þ ¼ 0. (21)
Proposition 1. Assume that at a Pareto efficient allocation, both spouses contribute to the provision of the household public
good. Then for the Nash equilibrium of the non-cooperative contribution game to be Pareto efficient it is sufficient (but not
necessary) that either (i) preferences are identical and there is equal division of the private good, i.e., yi ¼ 12; or (ii) preferences
may differ, but vm ¼ vw and f ðkm ; kw Þ ¼ f ðkm þ kw Þ.

Proof. Note that since it is assumed that both spouses contribute to the provision of the household public good, it must be
true that both (16) and (19) hold as strict equalities. (i) When ym ¼ yw , the private good is equally divided, and so
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V. Barham et al. / European Economic Review 53 (2009) 93–106 97

X mt ¼ X wt . Since preferences are the same, Eqs. (16)–(19) can be rewritten as

yi vi U xi ð1 þ mÞ þ ð1 þ mÞU G f ki ¼ 0; i ¼ m; w
and dividing both sides of equation by ð1 þ mÞ we have
yi vi U xi þ U G f ki ¼ 0; i ¼ m; w. (22)
Note that the above equation is the same as Eqs. (10)–(13). That is, the Nash equilibrium of the non-cooperative
contribution game is Pareto efficient.
(ii) If f ðkm ; kw Þ ¼ f ðkm þ kw Þ, then f km ¼ f kw for all km ; kw . And so if vm ¼ vw , it is evident that if Eqs. (16)–(19) are satisfied
whenever Eqs. (10)–(13) are. &

These sufficiency conditions point to the importance of some degree of similarity between spouses in ensuring efficiency
of the outcome. It is striking that when preferences are identical then, even when spouses differ with respect to their
outside earnings opportunities or productivity in producing the collective good, a Pareto efficient outcome is achieved as
long as they have an equal claim on the private good consumption. Moreover, if tastes differ but spouses are similar with
respect to their productivity both inside and outside the home, then this will also lead to Pareto efficient outcomes at the
Nash equilibrium, even with an unequal division of the private good.
More typically, the Nash equilibrium is inefficient; however, unlike standard models of the private provision of public
goods, the equilibrium may be characterized by over or underprovison with respect to a Pareto efficient outcome. Whereas
the free-rider problem explains the tendency towards underprovision, it may seem surprising that the public good can be
overprovided. Unlike the standard framework for the analysis of the private provision of public goods, in the model studied
here the partners have to share the private good (ym ; yw ), which reduces the private return to working outside the home,
and strengthens the incentive to contribute to the provision of the collective good. If these incentives are strong enough,
this may result in actual overprovision. Interestingly, as can readily be established by comparing Eqs. (16)–(21) and
(10)–(12), at any Nash equilibrium which is not Pareto efficient, there is generally ‘overspecialization’. Specifically, one of
the partners (typically, the lower wage spouse, or the spouse with the smaller share of the private good) will generally
allocate too much effort to household good production, and the other partner will spend too much time working outside
the home. Note that it is not possible for both partners to be overspecialized in the provision of the public good; likewise, at
a Nash equilibrium where both partners work outside the home and contribute to the collective good, both partners cannot
be underspecialized in the provision of the public good. These results may resonate with anecdotal tales of two-income
families in which working wives complain that their spouses do not contribute enough to housework (and that they have to
therefore pick up the slack), while their husbands express a desire to see their wives working longer hours in a paid job (so
that they are not obliged to work overtime hours to pay the bills).
There are also three distinct corner solutions: both partners work outside the home, but only one partner contributes to
household production; one partner works outside the home, and both contribute to household production; and, both
partners are specialized. Not surprisingly, corner solutions are more likely the greater the degree of asymmetry in the
division of the private good, or when there are significant differences in productivity or tastes. If one spouse is specialized
in market work, then there cannot be an inefficiently low level of household work by both spouses. Similarly, if one spouse
is specialized in household work, there cannot be an inefficiently high level of household work by both spouses. It is
possible for specialization (including full specialization) to be socially efficient; this requires a high degree of asymmetry in
market wages and productivity in household production.

3.3. The forces that drive us apart: the decision to divorce

At the beginning of period 2, members of married couples must decide whether to remain together, or to go their separate
ways. This decision is taken non-cooperatively; the household dissolves if either spouse can do better as a single individual than
as part of a couple. Notice that this reflects the institutional structure of jurisdictions with no-fault divorce—when one party
wishes to divorce, the marriage will be legally dissolved regardless of the preferences of the other partner. Once dissolved, each
partner takes with them a share li of the local public good, reflecting, again, the realities of many jurisdictions wherein the
division of family assets is entirely independent of the identity of the partner who initiated the divorce proceedings.
To understand the factors affecting the decision to remain married or to divorce, it is interesting to compare the rate of
accumulation of the local public good in one-person and two-person households. If, given an equivalent starting point, the
level of the local public good increases more rapidly in the two-person than in the one-person household, there is a good
chance that couples will wish to remain married.

Remark 2. Suppose that the existing stock of the local public good at the end of the first period is the same in both the
single-person and the two-person household. Then the level of the local public good will be (weakly) higher in the two-
person household than in the one-person household at the end of the second period.

Proof. See appendix.

This remark provides some insight into the forces that drive couples apart. Given an equal starting point at the beginning
of period two, the partners in the married couple will in fact have a higher level of consumption of the public good in period
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98 V. Barham et al. / European Economic Review 53 (2009) 93–106

two than they would as the head of a single-person household. Consequently, if either partner chooses divorce over
marriage, then it must be true that their level of consumption of the private good increases non-incrementally as a divorced
individual in comparison with their level of a consumption as a married person—in other words, as a married person, they
must be keeping a relatively small share of their market earnings, compared to what they would have available to them
were they to become single again.
What makes divorce more likely? It is evident that the utility of the divorced male partner is increasing in l (his share of
the public good upon divorce) and decreasing in yD (the share of his wage going to spousal support), whereas the opposite
is true for the female partner. Consequently, changes in the value of l and yD have opposing impacts on each spouse—an
adjustment in the rules concerning the division of family property or support obligations which makes husbands less likely
to leave will necessarily encourage wives to choose divorce over marriage. It is clear that more symmetrical divisions of
family assets—and, in particular, the 50–50 division rule which prevails in many no-fault divorce regimes—are more likely
to support the stability of marriage.
What proves harder to untangle is the impact of factors such as the gap in earning power, inequities in the division of
the private good, and support obligations, on the stability of the marriage. To investigate the forces which drive couples
apart, it is useful to examine the way in which the gap between the payoff to remaining married and to re-embracing the
single lifestyle evolves in response to changes in the value of the exogenous parameters. This payoff gap can be written as

Dm ¼ U m ðym ðvm ðL  b
km2 Þ þ vw ðL  b
km2 ÞÞ; dG1 þ f ðb
km2 ; b
kw2 ÞÞ
 U m ðvm ðL  e
D
km2 Þð1  yD Þ; ldG1 þ f ðkm2 ; 0ÞÞ,

Dw ¼ U w ðyw ðvm ðL  b
km2 Þ þ vw ðL  b
kw2 ÞÞ; dG1 þ f ðb
km2 ; b
kw2 ÞÞ
D D D
 U w ðvw ðL  kw2 Þ þ vm ðL  km2 ÞyD ; ð1  lÞdG1 þ f ð0; kw2 ÞÞ.

We first consider how these expressions change in response to the wage of the male partner. Differentiating Dm ; Dw with
respect to vm we obtain that

dDm D
¼ ym U m m

x ðL  km Þ  U x ðL  km2 Þð1  yD Þ (23)
dvm
db
kw2
þ ½ym vw U m m
x þ U G f kw  , (24)
dvm

dDw b D
¼ yw U w w
x ðL  km2 Þ þ U x ðL  km2 ÞyD (25)
dvm
db
D
km2 dkm
þ ½yw vm U w w
x þ U G f km   vm U w
x yD . (26)
dvm dvm
In general the signs of db k =dvm ; db
D 2
w2 k =dvm and dk =dvm are ambiguous. Note, however, that if ðq U m =qkm qvm Þ40 (which
m2 m
is true if the income effect of the change in the market wage on the household labor supply of the male spouse is less than
the substitution effect) then db kw2 =dvm ; dkm =dvm 40, and db
D
km2 =dvm o0. Assume for the moment that this is the case, and
suppose that the female partner is overspecialized in household production (that is, ym vw U m m
x þ U G f kw o0), and therefore
w w
he is underspecialized (that is, yw vm U x þ U G f km 40). In this setting, an increase in his wage rate will cause him to
contribute even less to household production, pushing his wife to be even more overspecialized, thus giving him more of
the collective good than he really wants. At the same time, he is having to share with his spouse the additional private
consumption from his increased earnings; were he to divorce, depending on the support obligation, he might be able to
keep a greater proportion of the increased private good consumption for himself. If support obligations are negligible, then
an increase in vm is more likely to reduce the husband’s attachment to the marriage; if support obligations are substantial,
then the husband may still be led to choose divorce over marriage due to these indirect effects. From the point of view of
the wife, although an increase in the husband’s earning power increases her private good consumption if she remains
married, it also increases the support payment that she receives if she divorces (both directly via the second term in (25)
and indirectly via the second term in (25)) because her divorced spouse will choose to engage in more market work. Given
that the wage increase leads her husband to neglect the housework even more than before, this may push her to prefer
divorce to continued marriage. In effect, then, it seems likely that his wage rate increase will destabilize the marriage for
both parties, and particularly for the wife. By contrast, if her wage rate were to increase, there would be a re-balancing of
household production: she would cut back on housework, while he would start to do more, and this would bring them
closer to an efficient outcome. Thus, both partners are more likely to find that their attachment to the marriage increases.
As these relationships are symmetric, then if it is the female partner who is underspecialized in the provision of the
collective good—and therefore the male partner who is overspecialized in household work—then an increase in his wage is
more likely to have a stabilizing impact on both her own and her husband’s attachment to the marriage; whereas if her
wage rate were to increase, she would work even less in the household and the marriage would tend to become less stable.
The likely impact of changes in the value of the exogenous parameters on the spouses attachment to the marriage is
summarized in Tables 1 and 2. Table 1 indicates the impact of an increase in his and her wage rate on the interior
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V. Barham et al. / European Economic Review 53 (2009) 93–106 99

Table 1
The impact of changes in the wage rate on the stability of marriage when partner iðjÞ over (under) contributes to the public good

db
kw2 dbkm2
Assumption 40; o0
dvm dvm
Interior equilibrium Corner

i ¼ over i ¼ mixed underprov i ¼ mixed overprov i ¼ mixed=under i ¼ mixed=over i ¼ public

j ¼ under j ¼ public j ¼ public j ¼ private j ¼ private j ¼ private

vi " i:S i:D i:D i : Dþ i:D i : neutral

j : Sþ j:? j : Sþ j:D j : Sþ j : neutral

vj " i:D i : neutral i : neutral i : Sþ i : Sþ i : Sþ

j:D j : neutral j : neutral j:S j:D j:D

S; single; D; divorced; i; over; vi ; wage rate of i; vj ; wage rate of j.

Table 2
Impact of changing male wage on marital stability

db
kw2 db
km2 db
kw2 db
km2 db
kw2 db
km2
o0; 40 40; o0 o0; o0
dvm dvm dvm dvm dvm dvm

i ¼ over i ¼ over i ¼ over

j ¼ under j ¼ under j ¼ under
i:D i:S i:D
j:D j:S j:S

S; stabilizing; D; destabilizing; vi ; wage of i; vj ; wage of j.

equilibrium plus all three corner solutions, under the two possible scenarios regarding over/under-specialization with
respect to the production of the public good. In Table 1 we assume that the income effect of a change in the market wage is
less than the substitution effect, i.e., that dbkw2 =dvm 40, and db
D
km2 =dvm ; dkm2 =dvm o0. Table 2, in contrast, presents the
results for the interior equilibrium when this assumption does not hold. While an exhaustive discussion of each of the
possible cases is not useful, some of the results are interesting to highlight. For example, consider a corner solution where
the wife stays at home, and the male works both inside and outside the home, and assume that the male wage increases. A
male with a working wife will benefit from the increased provision of the public good, but there is no such increase for the
husband of a wife who is already specialized exclusively in home production. Consequently, ceteris paribus, the male with
the stay-at-home wife is more likely to be tempted to divorce following a pay hike than is the male with the working
spouse.
If we look at the other corner solution, and assuming that it is the male partner who works exclusively in the labor
market while the wife does both, then an increase in his wage will increase private good consumption for both partners if
they remain married, and probably lead to the wife choosing to spend more time on the provision of the collective good. In
the case of divorce, the support received by the wife would increase, but the private good consumption by the husband
would also increase substantially. On balance, an increase in the husband’s wage is more likely to increase the attachment
of both spouses to the marriage if the wife were initially underproviding the collective good, whereas it is more likely to be
destabilizing if the wife were initially overspecialized in household production.
Looking at the ‘double corner’ where both partners completely specialize, one working outside of the home providing all
of the private good while the other contributes only to the public good, then an increase in the earnings of the partner
working outside of the home (the male) renders the other (her) unambiguously better off (because there is increased
private good consumption) while it will tend to make divorce more attractive to him (because there is no increased public
good, but an obligation to share the increased private good). This scenario certainly seems plausible, and seems to be
consistent with the anecdotal evidence of the vulnerability of traditional marriages to divorce when the husband obtains a
significant raise.4
Table 2 also reveals that if the signs of the effects of wage on contributions to household production move in the same
direction for men and woman, then changes in wages have a destabilizing impact on the marriage because the reactions of
both partners are at odds with each other: What is stabilizing for one is destabilizing for the other. The results of Tables 1
and 2 are summarized in the proposition below.

4
Note that our married couples do not have children and therefore there is no child support to pay.
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100 V. Barham et al. / European Economic Review 53 (2009) 93–106

 
Proposition 3. Assume that sgnðdkw2 =dvi Þasgnðdkm2 =dvi Þ; i ¼ m; w. Then when a change in the market wage of the husband
(wife) tends to increase the stability of marriage for the husband, it also tends to increase the stability of marriage for the wife.
 
Assume that sgnðdkw2 =dvi Þ ¼ sgnðdkm2 =dvi Þ; i ¼ m:w. A change in the value of the market wage of the husband (wife) which is
stabilizing for the husband will tend to be de-stabilizing for the wife.

We now look at the impact of changes in other key parameters of the model: The proportion of the private good going to
each parter, yi , and the two policy parameters, l and yD (see Table 3).
In the case of yi ; l and yD , it is evident that the direct impact on each partner is of opposing sign: An increase in the share
of the private good, or of the share of the accumulated assets, or a decrease in the support payment, benefits the male
partner at the expense of the share accruing to the female partner. Consequently, the likely direct impact of an increase in yi
or yD, or of a reduction in l, will be to increase the attachment of the husband to the marriage, but also to render divorce a
more attractive option for the wife. In addition to the direct effects, however, there are also indirect effects associated with
changes in ym and yD . In the case of an increase in ym , the indirect impact once again depends (as above) on the interaction
between terms which reflect the relative roles of each spouse in household production (which are always opposite in sign),
and the responsiveness of each spouse’s household labor supply to the change in ym . With respect to an increase in the
support obligation, yD , the net benefit to a divorced wife of an increase in the support provision is affected by the extent to
D
which her ex-husband adjusts his income earning activity, i.e., dkm =dyD . If the substitution effect outweighs the income
effect, then an increase in support provisions will encourage the husband to reduce market work, tempering the benefit
which the divorced wife will receive from the more favorable legal environment: wives will still be more likely to seek a
divorce when there is an increase in yD , but not in the numbers which might have been expected. It is straightforward to
establish that yD can be an extremely effective policy tool if the goal of policy-makers is to promote the stability of
marriage.

Proposition 4. Assume that yD is chosen so that the total market income accruing to the divorced husband and wife is shared
D
between them in the same proportion as market income was shared during marriage, i.e., vm ð1  yD ÞðL  km Þ=ðvm ðL
D D
km Þ þ vw ðL  kw ÞÞ ¼ ym . Then both the husband and the wife will always prefer continued marriage rather than divorce.

Proof. When the support obligations share total post-divorce market income between the spouses in the same proportion
as it was divided between the partners during marriage, then the slope of the individual budget set is the same in both
situations. In contrast, the fact that the household collective good is not divided when partners remain married means that
the budget set of the married male (respectively, female) strictly contains the budget set of the divorced male (respectively,
female). Both partners must therefore prefer continued marriage. &

To the extent that ym ; yw may differ across households, a uniform, legally prescribed formula for determining support will
not be sufficient to ensure the stability of all marriages. However, it is evident that a policy regime which sets out to
equalize post-divorce income (such as underlies the current spousal support guidelines in Canada) should greatly stabilize
marriage, except in situations where there is a highly unequal division of the private good within the marriage.
Note that it is trivial to establish the existence of a Nash equilibrium in the second-period subgame since ðD; DÞ is always
an equilibrium; ðM; MÞ is also an equilibrium as long as both partners receive a higher payoff when they remain married,
i.e., if ðM; MÞ is an equilibrium, then it must also be Pareto-superior to ðD; DÞ. However, there is no reason to expect
coordination failures even in the simultaneous setting examined in this game: Since unilateral divorce means that the
payoff to both parties are the same whenever one (or both) partners chooses to divorce, a partner derives no benefit from
choosing ‘divorce’ as a strategy rather than ‘marriage’ when continued marital bliss is in fact the preferred option.

4. Period one decision: To marry or remain single

We now consider the decisions that must be taken in stage one, namely, whether or not to marry or remain single, and
how to allocate the labor endowment between production of the collective good and the external labor market. It is
immediately evident that, except for the accumulated stock of the collective good, G1 , the decision problem faced by the
individual who decides to remain single in period one is similar to that of the lone person household in period two; the only
significant difference is that the individual must anticipate the impact of their first period investment in the production of

Table 3
Impact of changes in policy parameters on marital stability

Assumption qb
kw2 qb
km2 qb
kw2 qb
km2 qb
kw2 qb
km2
40; o0 40; o0 40; o0
qd qd qyi qyi qyj qyj

l" yi " yj "

i ¼ over i:D i:D i:D
j ¼ under j:S j:S j:S

D; destabilizing; S; stabilizing; l; division of assets; yi ; share of private good.

 ARTICLE IN PRESS
V. Barham et al. / European Economic Review 53 (2009) 93–106 101

the collective good on period two decision making. In contrast, anticipation of the future—and in particular, whether or not
the partners expect to remain married or to seek divorce at the end of period one—affects the decision-making of those
individuals who decide to marry. The possibility of future divorce exacerbates first-period inefficiencies due to the non-
cooperative nature of the subscription game, which in turn increases the likelihood of subsequent divorce.

4.1. Forever single

Individuals who choose not to marry at the beginning of period one know that they will remain single for the rest of
their lives. In taking their first-period decision regarding the allocation of effort between private labor-market activity and
production of the collective good, they anticipate the impact of this decision on the options available to them in the second
period. We use f; 0ofo1, to denote the individual’s time preference, V i to denote the individual’s utility in period one. The
decision problem facing the single individual in period one can be expressed as

max V i ðxi1 ; G1 Þ þ fU i ðxi2 ; G2 Þ

ki1

¼ V i ðui ðL  ki1 Þ; f ðki1 ; 0ÞÞ þ fU i ðui ðL  e

ki2 Þ; dG1 þ f ðe
ki2 ; 0ÞÞ
subject to
G1 ¼ f ðki1 ; 0Þ.
After application of the envelope theorem, the first-order condition for this individual can be expressed as

ui V ix þ V iG f k þ fdU iG f k ¼ 0. (27)

We denote the level of ki1 which solves (27) as e ki1 . Lifetime utility of the forever single individuals may be expressed as
V i ðui ðL  e
ki1 Þ; dG0 þ f ðe
ki1 ; 0ÞÞ þ fU i ðui ðL  e
ki2 Þ; dG1 þ f ðeki2 ; 0ÞÞ.

4.2. Just married

We turn now to the decision problem facing those individuals who have chosen to marry at the beginning of period one.
When they take their decision regarding the effort to allocate to the production of the collective good, they anticipate
whether or not their marriage will survive until period two, or whether the second period will see them newly single. For
the sake of exposition, it is easiest to present separately the programs solved by the individual who anticipates sustained
marital bliss and for the individual who expects their marriage to end in divorce. Thus, for the man we have that:

If remain married: max V m ðX m1 ; G1 Þ þ fU m ðX m2 ; G2 Þ

km1

¼ V m ðym ½vm ðL  km1 Þ þ vw ðL  kw1 Þ; f ðkm1 ; kw1 ÞÞ

þ fU m ðym ½vm ðL  bk Þ þ vw ðL  b
m2 k Þ; f ðb
w2 k ;b k m2 w2 ÞÞ.

After application of the envelope theorem, the first-order necessary conditions for the man and the woman are,
respectively

qb
kw2
 um ym V m m m
x þ V G f km þ fdU G f km þ f ðuw ym U m m
x þ U G f kw Þp0 (28)
qkm1

km1 X0, (29)

" #
qb
kw2
km1 um ym V m m m
x þ V G f km þ fdU G f km þ f ðuw ym U m m
x þ U G f kw Þ ¼ 0, (30)
qkm1

qb
km2
 uw yw V w w w
x þ V G f kw þ fdU G f kw þ f ðum yw U w w
x þ U G f km Þp0, (31)
qkw1

kw1 X0, (32)

" #
qb
km2
kw1 uw yw V w w w
x þ V G f kw þ fdU G f kw þ f ðum yw U w w
x þ U G f km Þ ¼ 0. (33)
qkw1
b b
This system of equations jointly determine the subgame-perfect Nash equilibrium contributions of each partner, ðb km1 ; b
kw1 Þ
to the production of the collective good in the first period of the marriage. Notice that if both partners are symmetric with
respect to preferences and the private good is shared equally between the spouses, then we recover Becker’s prediction that
the higher-earning spouse will specialize exclusively in market activity, and the other spouse will work principally in the
home.
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102 V. Barham et al. / European Economic Review 53 (2009) 93–106

Similarly, if the partners anticipate that they will divorce after a single period of marriage, then the man’s decision
problem can be expressed as:

If anticipate divorce: max V m ðX m1 ; G1 Þ þ fU m ðX m2 ; G2 Þ

kmt

¼ V m ðym ½vm ðL  km1 Þ þ vw ðL  kw1 Þ; f ðkm1 ; kw1 ÞÞ

D D
þ fU m ðum ðL  km2 Þð1  yD Þ; dlG1 þ f ðkm2 ; 0ÞÞ.
After application of the envelope theorem, the first-order necessary conditions for the man and woman are, respectively,

um ym V m m m
x þ V G f km þ fdlm U G f km p0, (34)

km1 X0, (35)

km1 ½um ym V m m m
x þ V G f km þ fdlm U G f km  ¼ 0, (36)
!
D
dkm2
uw yw V w w w
x þ V G f kw þ f vm ym U x þ dlw U w
G kw p0
f (37)
dkw1

kw1 X0, (38)

" !#
D
dkm2
kw1 uw yw V w w w
x þ V G f kw f vm ym U x þ dlw U w
G f kw ¼ 0. (39)
dkw1
D
Note that the additional term, vm ym ðdkm2 =dkw1 Þ, in the first-order condition for the woman reflects the impact of her
e e
first-period effort on the support payment she receives when divorced. We denote by ðb km1 ; b
kw1 Þ the subgame-perfect Nash
equilibrium levels of contribution to production of the collective good during marriage.

4.3. The forces of attraction: To wed or not to wed

At the end of the day, the question of interest is whether it can ever make sense for individuals to marry, even if they
anticipate subsequently divorcing. Marriage clearly has much natural attraction, as it should in principle enable the
partners to enjoy relatively high levels of consumption of both the private and collective good; however, the benefits from
such a partnership will be attenuated by free riding, and this may mean that individuals choose to remain single. What is
much harder to understand is why—if the benefits of marriage are large enough to make it worthwhile getting married in
the first place—these benefits would no longer be significant enough to justify continuing with the marriage in the second
period. Indeed, given that there is a division of family assets in the case of divorce, it is difficult to understand why either
partner would consent to marriage if they expected to find themselves single again in period two. Nonetheless, what the
analysis below now demonstrates is that this outcome may emerge as an equilibrium in at least some situations.
To gain greater insight into the factors which draw couples together, albeit possibly on a temporary basis, it is useful to
set out the conditions that must be met for marriage–divorce or marriage–marriage to prevail in equilibrium. We observe
that:
ðM; MÞ is the equilibrium outcome if and only if:
ðiÞ U i ðmarriage; marriageÞ4
U i ðsingle; singleÞ for both m; f
i
and ðiiÞ U ðmarriage; marriageÞ4
U i ðmarriage; divorceÞ for both m; f ;

ðM; DÞ is the equilibrium outcome if and only if:

ðiÞ U i ðmarriage; divorceÞ4
U i ðsingle; singleÞ for both m; f
i
and ðiiÞ U ðmarriage; marriageÞo
U i ðmarriage; divorceÞ for either m; f :
Otherwise; the equilibrium outcome is ðS; SÞ:

While these conditions are straightforward to set down, what is more challenging is to provide some insight into the
factors which determine which outcome will prevail.

Remark 5. Suppose individuals have identical tastes, vm ¼ vw , f ðkm ; kw Þ ¼ f ðkm þ kw Þ and ym ¼ yw . Then ðM; MÞ is a
subgame perfect Nash equilibrium, regardless of l.
 ARTICLE IN PRESS
V. Barham et al. / European Economic Review 53 (2009) 93–106 103

Proof. It is straightforward to check that, under these assumptions, the Nash equilibrium of the contribution game in both
period one and period two is efficient. This result follows from the fact that individuals can ensure a (weakly) higher level
of both the public and private goods in each period for each partner as part of a couple. Each partner is always strictly better
off remaining married rather than seeking a divorce, even if they could take with them 100% of the family assets: Hence l is
irrelevant. &

The fact that couples consisting of very similar individuals will have stable marriages suggests that pairings between
individuals with very different tastes or skills, or in which resources are very asymmetrically shared, may be those which
are least likely to be successful, and indeed it is easy to construct examples of mis-matched couples where ðS; SÞ is the only
subgame perfect Nash outcome. In effect, just as a high degree of symmetry promotes stable marriage, a high degree of
asymmetry promotes stable single-person households. This suggests that marriage–divorce may arise when there are
‘enough’ benefits from joint production to make it worthwhile to join forces in the first period, but where the problems of
team production become more severe in the second period, leading to divorce. The reason that resource allocation may be
less efficient in the second period than in the first one is precisely because of the accumulation of a stock of the household
public good. Indeed, if d ¼ 0—so that there is no accumulation of the household public good—then the only possible
equilibria are ðM; MÞ and ðS; SÞ. This is because when d ¼ 0, period one looks exactly like period two. Consequently, if it is
worthwhile to marry in period one, it is worthwhile to remain married in period 2. In other words, unless there is positive
asset accumulation during the first period of marriage, it can never be rational to enter into marriage, fully anticipating
subsequent divorce.
It is not possible to set out precisely the conditions for which ðM; DÞ is an equilibrium, aside from the observations made
above. Of course, we could compromise the generality of our model and set out specific functional forms that permit
closed-form solutions; but we do not think that this exercise would be as insightful: we know that there is a potential
wedge between the benefits from joint production in the first period and free riding in the second period that may render
ðM; DÞ plausible. We do, however, present simulation results in Table 4, which demonstrate that there exist well-behaved
utility functions and parameter values satisfying the assumptions of this model for which marriage in the first period
followed by divorce is an equilibrium. Notice that in this particular simulation, the utility functions are quasi-linear, and
that the production technology for the household public good is in no way exotic. The household public good is assumed to
be highly durable; however, the future has much less weight than the present. The results presented in the left-hand
column illustrate nicely the idea that, ceteris paribus, increasing asymmetry between the partners is likely to drive possible
couples apart: whereas initially the equilibrium is ðM; DÞ, when the asymmetry becomes stronger it is better to remain
single than to marry. The column on the right shows that the stability of the marriage is sensitive to the values of
parameters reflecting the male’s support obligations after the marriage, and to the sharing rule for the private good within
married couples.
Having demonstrated that ðM; DÞ can be a rational equilibrium, we now examine more closely the dynamics of such
‘temporary’ household formation. The forces which draw couples together may be derived from the observation that if
ðM; DÞ4ðS; SÞ for both the male and the female, then partners get married for sure. So insight into the process of household
formation can be gleaned from examining how the gap between the payoff to marriage–divorce and to single–single

Table 4
Simulation results

pffiffiffiffiffiffi pffiffiffiffiffiffi
Model ðS; SÞ max vi ðL  ki1 Þ þ G1 þ f½vi ðL  ki2 Þ þ G2 
ki1
subject to
G1 ¼ ki1 ; G2 ¼ dG1 þ ki2 ; i ¼ m; w
pffiffiffiffiffiffi pffiffiffiffiffiffi
Model ðM; MÞ max yi ½vi ðL  ki1 Þ þ vj ðL  kj1 Þ þ G1 þ ffyi ½vi ðL  ki2 Þ þ vj ðL  kj2 Þ þ G2 g
ki1
subject to
G1 ¼ ki1 þ kj1 ; G2 ¼ dG1 þ ki2 þ kj2 , i; j ¼ m; w, iaj
pffiffiffiffiffiffi pffiffiffiffiffiffi
Model ðM; DÞ yi ½vi ðL  ki1 Þ þ vj ðL  kj1 Þ þ G1 þ ffvi ðL  ki2 Þ  yD vm ðL  km2 Þ þ G2 g

subject to
G1 ¼ ki1 þ kj1 ; G2 ¼ dli G1 þ ki2 ; li þ lj ¼ 1, i; j ¼ m; w, iaj
Parameter values: d ¼ 0:9; L ¼ 0:5; f ¼ 0:03; yM ¼ 0:5; yW ¼ 0:5; l ¼ 0:7

Variable Equilibrium Variable Equilibrium

vM ¼ 2:0; vw ¼ 1:5; yD ¼ 0:1 ðM; DÞ vM ¼ 2:0; vw ¼ 1:5; hD ¼ 0 ðM; DÞ

vM ¼ 2:3; vw ¼ 1:5; yD ¼ 0:1 ðM; DÞ vM ¼ 2:0; vw ¼ 1:5; hD ¼ 0:5 ðM; DÞ
vM ¼ 2:5; vw ¼ 1:5; yD ¼ 0:1 ðS; SÞ vM ¼ 2:0; vw ¼ 1:5; hD ¼ 0:95 ðM; MÞ
vM ¼ 2:0; vW ¼ 1:5; yD ¼ 0:1 ðM; DÞ vM ¼ 2:0; vw ¼ 1:5; hM ¼ 0:5 ðM; DÞ
vM ¼ 2:0; vW ¼ 2:2; yD ¼ 0:1 ðM; DÞ vM ¼ 2:0; vw ¼ 1:5; hM ¼ 0:6 ðM; MÞ
vM ¼ 2:0; vW ¼ 2:5; yD ¼ 0:1 ðS; SÞ
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104 V. Barham et al. / European Economic Review 53 (2009) 93–106

evolves in response to changes in the value of exogenous parameters. The gaps for each partner can be straightforwardly
expressed as
b b b b
Fm ¼ V m ðym ðum ðL  b
km1 Þ þ vw ðL  b
kw1 ÞÞ; f ðb
km1 ; b
kw1 ÞÞ
b b
þ fU m ðum ðL  km2 Þð1  yD Þ; dlf ðb
km1 ; b
D D
kw1 Þ þ f ðkm2 ; 0ÞÞ
 V m ðum ðL  e
km Þ; f ðe
k ; 0ÞÞ
m1

 fU ðum ðL  e
m
km2 Þ; df ðe
km1 ; 0Þ þ f ðe
km2 ; 0ÞÞ,

b b b b
Fw ¼ V w ðyw ðum ðL  b
km1 Þ þ vw ðL  b
kw1 ÞÞ; f ðb
km1 ; b
kw1 ÞÞ
b b
þ fU w ðuw ðL  kw2 Þ þ um yD ðL  km2 Þ; dlf ðb
km1 ; b
D D D
kw1 Þ þ f ðkw2 ; 0ÞÞ
 V ðuw ðL  e
w
k Þ; f ðe
w1 k ; 0ÞÞ
w1

 fU w ðuw ðL  e
kw2 Þ; df ðe
kw1 ; 0Þ þ f ðe
kw2 ; 0ÞÞ.

We can then study what happens to the tradeoff between remaining married and becoming divorced in period
two by differentiating these gaps with respect to the exogenous parameters, e.g., yi ; vi ; l and yD . For example, we observe
that

dF m b
b b
b e e
¼ ym V m m m m
x ðL  km1 Þ þ fU x ðL  km2 Þ  V x ðL  km1 Þ  fU x ðL  km2 Þ
dvm
b
b
b db
kw1
þ ðym vw V m m m
x ðL  kw1 Þ þ V G f b þ flU G f b Þ ,
bk bk dvm
w1 w1

b
dFw b
b b
b db
km1
¼ yw V w w w
x ðL  km1 Þ þ ðyw vm V x ðL  km1 Þ þ V G f b þ flU w f
G b Þ .
dvm bk bkm1 dvm
m1

Once again we see that a change in the value of vm has both a direct effect on the gap between the payoffs to marriage/
divorce and single/single, and an indirect effect which depends on the roles of the spouses in household production, and the
overall impact is generally ambiguous. What is interesting to note, however, is that the same pattern of effects emerges as
b
was discussed before: The terms multiplying db ki1 =dvm reflect the relative roles of the spouses within the household
b
and—except in the case of efficient provision—they will always be of opposite sign. Consequently, when sgnðdb km1 =dvm Þa
b
b
sgnðdkw1 =dvm Þ, then in those cases where the indirect impact of an increase in vm is stabilizing for the husband, it is also
b b
km1 =dvm Þ ¼ sgnðdb
stabilizing for the wife; in contrast, if sgnðdb kw1 =dvm Þ then the indirect effects will be of opposite sign for
the husband and wife. Interestingly, in the case of changes to ym ; yD and l, while the direct impacts are of opposite sign for
the husband and wife, the same pattern arises for the indirect effects as with respect to a change in vm . This fact is reflected
in the proposition below.
b b
Proposition 6. Let o denote a specific exogenous parameter (vm ; ym ; yD or l). Assume that sgnðdb km1 =doÞasgnðdbkw1 =doÞ. Then
when the indirect effect of a change in the value of an exogenous parameter increases the attractiveness of marriage for one
b b
partner, it also increases the attractiveness of marriage for the other partner. Assume that sgnðdb
km1 =dvoÞ ¼ sgnðdb
kw1 =doÞ. Then
when the indirect effect of a change in the value of an exogenous parameter makes marriage more attractive for one partner,
marriage becomes less attractive for the other partner.

Note, of course, that increases in l and yD tend to eliminate the ðM; DÞ equilibrium. If the division of family assets is highly
asymmetric in the case of divorce, or if support payments are confiscatory, then this can initially support ðM; MÞ as an
equilibrium because both parties benefit from joint production, but neither can do better off if divorced; this may also
increase the marriage rate. However, as support payments continue to increase, the analysis of the change in the payoffs
between marriage and divorce suggests that this should ultimately be destabilizing for the marriage—the wife’s cost of exit
becomes low and the penalty to the husband of the collapse of the marriage is high. In these circumstances, the only
equilibrium is ðS; SÞ.
Finally, we touch briefly on the issue of existence. Recall that it is always a Nash equilibrium for both parties to choose
divorce at the end of period one. Thus, at the beginning of period one, if the lifetime expected utility from (marriage,
divorce) exceeds that for (single, single) for both parties, then there exists a subgame perfect Nash equilibrium in which
both parties choose marriage, and subsequently choose divorce. Otherwise, there is a subgame perfect Nash equilibrium in
which both parties choose to remain single in period one because they anticipate that the other party will choose divorce at
the beginning of period two. Nonetheless, if a stable marriage is advantageous to both parties, then ðM; MÞ is also a
subgame perfect Nash equilibrium.
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V. Barham et al. / European Economic Review 53 (2009) 93–106 105

5. Conclusions

The analysis developed in this paper provides new insight into the dynamics of household formation and dissolution,
and shows that it may be rational for couples to marry knowing full well that the partnership will subsequently end in
divorce. Marriage provides the partners with an opportunity to rapidly build up a significant stock of the household public
good; for this reason, a short-term marriage may be more advantageous to both of the partners than remaining single.
When couples are sufficiently similar, marriage is stable; however, significant disparities of economic power, or of
preferences, contribute to marital instability. The analysis also highlights the role of strategic behavior: in the absence of
strategic considerations, it would always be optimal for the partners to marry, and to remain married. The only reason for
which they remain single, or for which they subsequently divorce, is that strategic behavior makes it impossible for the
potential gains from marriage to be realised. The complexity of the strategic interaction between the partners makes the
impact of changes in the exogenous environment unpredictable. In particular, depending upon the division of labor within
the household, changes in such parameters as the market wage of one partner may in fact lessen the attachment of both
partners to the marriage, rather than affecting the partners asymmetrically as might have been expected. The analysis also
considers the impact of public policy parameters on the stability of marriage, namely, the rules concerning the division of
family assets, and the provisions for support. When the Family Law requires that family assets be divided equally, and that
spousal support largely equalize post-tax income in both the male and female post-divorce household, this will tend to
reduce both the rate of divorces, and the rate of marriage.
A limitation of this analysis is that it abstracts both from the search procedure and from the determination of the
sharing parameter for the private good. It seems reasonable to suggest that introducing search considerations into the
model would make marriage–divorce a less common equilibrium outcome, but not eliminate these equilibria entirely. A
more promising avenue for extending this model would be through the endogenization of the sharing rule for consumption
of the private goods, as this might generate insight into the extent to which the desire to get married, on the one hand, and
to thwart divorce, on the other, may temper the power of either spouse to demand a higher share of the consumption of the
private good.

Acknowledgments

We would like to thank Michael Hoy and an Associate Editor for valuable comments. We assume responsibility for all
remaining errors.

Appendix A. Proof of Remark 1

Within marriage, the decision problem facing the spouses is

max U i ðxi2 ; G2 Þ ¼ U i ðyi ðum ðL  b

km2 Þ þ uw ðL  b
kw2 ÞÞ; dG1 þ f ðb
km2 ; b
kw2 ÞÞ.
ki2

At an equilibrium of the household production subgame, the Kuhn–Tucker conditions prescribe that

ym um U m m
x þ U G f kmt p0, (40)

km2 X0, (41)

km2 ½ym um U m m
x þ U G f kmt  ¼ 0, (42)

yw uw U w w
x þ U G f kwt p0, (43)

kw2 X0, (44)

kw2 ½yw uw U w w
x þ U G f kwt  ¼ 0. (45)
   
Denote by km2 X0; kw2 X0
the solution to this system of equations, and km2 X0; kw2 X0
is therefore the contribution that
each spouse will make to the production of the household public good. The available amount of the local public good is
therefore
 
G2 ¼ dG1 þ f ðkm2 ; kw2 Þ. (46)
In contrast, in a one-person household, the level of local public good production is determined by solving

e 2 Þ ¼ U i ðui ðL  e
max U i ðxi2 ; G e 1 þ f ðe
ki2 Þ; dG ki2 ; 0ÞÞ,
ki2
 ARTICLE IN PRESS
106 V. Barham et al. / European Economic Review 53 (2009) 93–106

e denotes the level of the local public good for the single-person household. The first-order condition is
where G
um U m m
x þ U G f km2 ¼ 0 (47)
and denote by e
km2 the solution to (47). This means that amount of the local public good available in the one-person
household is

G e 1 þ f ðe
e 2 ¼ dG km2 ; 0Þ. (48)
e t 4Gt . Then we know that
Suppose that in equilibrium we have G
m
Ue oU m
G.
G

Moreover, since the production function is concave,

e  
km2 Xkm2 þ kw2
) f e pf k2 .
km2

So we have
Um m
G f km2 4Ue f e .

G km2

However, we have
ym um U m m
x X  um U x
)  ym um U m m m m
x þ U G f kmt 4  um U x þ U G f kmt ¼ 0
e 2 pG2 . This means that if the existing stock of the local public good is the same in both the single-
which is impossible. So G
person and the two-person household then the level of the local public good will be (weakly) higher in the two-person
household than in the one-person household.

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