Subjective Divorce Risk, Perceived Outside Options, and Intra-Household Allocation

Abstract: 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. Using new survey data from married individuals and couples in the United States, the study elicits subjective divorce risk, expected outcomes if a marriage continues, and expected outcomes following divorce. It documents substantial heterogeneity in perceived divorce risk; measures expected effects on labor supply, fertility, health, and within-household allocation; and uses these expectations to inform a model of wives’ labor supply under divorce risk.