An Assignment Model with Divorce and Remarriage

We develop a two-sided matching model with positive sorting. Match quality for each couple is revealed ex post and those with poor draws divorce. We show that full commitment and Nash bargaining mechanisms both yield the same non-contingent intra-household allocations. We then apply our framework to an analysis of changes in divorce settlement laws. Changes in laws governing property division in divorce can have temporary effects in their desired direction, but whether or not their longer term impact can be undone in the markets for marriage depends on commitment and the timing of marriage vis-a-vis the legislative policy change. In particular, we find that, if existing couples were able to commit to their allocations prior to marriage, legislative changes that favor a spouse yield their intended benefits only among the poorquality matches. But if existing couples were not able to make pre-marital allocative commitments, then changes in property division rules in divorce impact all couples and generate marital gains for all of the intended beneficiaries. For individuals not yet married, in contrast, changes in property division rules generate offsetting intra-household transfers and lower intra-marital allocations for all future spouses who are the intended beneficiaries. ∗For useful comments and suggestions, we thank Zvi Eckstein, Adrian Masters, Andrew Newman as well as seminar and conference participants at Queen’s University, Koc University, Sabanci University, Tel Aviv University, the 2005 Society for Economic Dynamics meetings and the 2006 AEA Meetings. The standard disclaimer applies. Corresponding author: Pierre-Andre Chiappori, Economics Department, Columbia University, 1009A International Affairs Building, MC 3308, 420 West 118th Street, New York, NY 10027. E-Mail: [email protected]. Phone: (212) 854-6369. Fax: (212) 854-8059. †Columbia University ‡University of Colorado, CID at Harvard University and IZA §Tel Aviv University and IZA