Pierre André Chiappori (Columbia) "Family Economics" - Cemmap

272 6. Uncertainty and Dynamics in the Collective model
approach to dynamic household behavior. Empirically, this generalization
seems to work significantly better than the unitary framework. For instance,
a well-known result in the consumption literature is that household Euler
equations display excess sensitivity to income shocks. The two main explanations
are the existence of borrowing constraints and non-separability
between consumption and leisure. However, the findings in Mazzocco (2007)
indicate that cross-sectional and longitudinal variations in relative decision
power explain a significant part of the excess sensitivity of consumption
growth to income shocks. Such variations, besides being interesting per
se, are therefore crucial to understanding the dynamics of household consumption.
A second conclusion is that the commitment issue is a crucial
dimension of this dynamics; a couple in which agents can credibly commit
on the long run will exhibit behavioral patterns that are highly specific.
Thirdly, it is possible to develop models that, in their most general form,
can capture both the ‘collective’ dimensions of household relationships and
the limits affecting the spouse’s ability to commit. The unitary model and
the full efficiency version of the collective approach are nested within this
general framework, and can be tested against it.
6.5 Divorce
6.5.1 The basic model
Among the limits affecting the spouses’ ability, an obvious one is the possibility
of divorce. Although divorce is, in many respects, an ancient institution,
it is now more widespread than ever, at least in Western countries.
Chiappori, Iyigun and Weiss (2008) indicate for instance that in 2001,
among American women then in their 50s, no less than 39% had divorced
at least once (and 26% had married at least twice); the numbers for men
are slightly higher (respectively 41% and 31%). Similar patterns can be
observed in Europe (see chapter 1). Moreover, in most developed countries
unilateral divorce has been adopted as the legal norm. This implies that
any spouse may divorce if (s)he will. In practice, therefore, divorce introduces
a constraint on intertemporal allocations within the couple; that is,
at any period, spouses must receive each within marriage at least as much
as they would get if they were divorced.
Clearly, modeling divorce - and more generally household formation and
dissolution - is an important aspect of family economics. For that purpose,
a unitary representation is probably not the best tool, because it is essential
to distinguish individual utilities within the couple. If each spouse
is characterized, both before and after marriage, by a single utility, while
the couple itself is represented by a third utility with little or no link with
the previous ones, modeling divorce (or marriage for that matter) becomes
very difficult and largely ad hoc . Even if the couple’s preferences are closely