About the talk

Divorce is a central source of uncertainty for married households and a key determinant of labor supply, specialization, savings, and intra-household allocation. Yet little is known about how married individuals perceive divorce risk, how they expect their lives to change if divorce occurs, and how these beliefs shape behavior within marriage before any divorce takes place. We use new survey data from married individuals and couples in the United States to elicit three decision-relevant objects: the subjective probability that the marriage ends in divorce, expected outcomes if the marriage continues, and expected outcomes if the marriage ends in divorce.

We make three contributions. First, we document substantial heterogeneity in subjective divorce risk. Perceived divorce risk is non-negligible for many respondents and is strongly related to marital satisfaction, beliefs about asset division upon divorce, and remarriage expectations.

Second, using counterfactual scenarios, we measure subjective ex-ante treatment effects of divorce on labor supply, fertility, health, and within-household allocation. Women expect divorce to induce large changes in labor supply, shifting from part-time to full-time work both in the short run and later in life. Respondents also expect divorce to reduce fertility, lower survival, and reallocate a hypothetical windfall away from shared uses and toward private uses.

Third, we use these scenario-based expectations to estimate a limited commitment model of intra-household allocations under divorce risk. The model highlights the role of labor supply and human-capital accumulation in providing insurance against divorce risk. Our findings show that the willingness to pay (WTP) to avoid the economic consequences of divorce is negligible for much of the sample because they perceive low risk of divorce. However, the WTP can be as high as 30% of lifetime consumption for a sizable part of the sample.