The Influence of Transaction Costs and Legal Regimes on Divorce Rates

This analysis extends H. Elizabeth Peters’ “Marriage and Divorce: Information Constraints and Private Contracting” (1986). Peters introduced two models of marital bargaining. We argue those models may be viewed as special cases of a single, threedimensional framework. The third dimension represents the transaction costs of intramarital exchange. The transaction-cost model illustrates that changes in divorce law have a marginal effect on economic outcomes, and the magnitude of the effect increases along with transaction costs. Transaction costs vary across a population. Therefore, on the margin, divorce law will influence which type of couples divorce. Using divorce data from 1968 to 1985, we find significant differences in the characteristics of divorcing couples across legal regimes. These differences are consistent with our beliefs about the transaction costs impeding intramarital exchange. We find these differences are generally consistent across definitions of unilateral divorce, not representative of household sorting prior to divorce, and persist beyond the transition period between legal regimes. All of these tests support the hypothesis that transaction costs influence divorce outcomes, and that the influence varies across legal regimes.