"Committing While We Still Can: Marital Regimes, Labor Supply and Household Intertemporal Behavior" (with Andrea Mattia, Banca d'Italia)

Abstract:

This paper studies how households use premarital agreements to commit to how marital assets will be divided in case of divorce. We examine a setting in which the cost of such agreements is minimal: by marking their choice on the marriage license application, Italian couples can choose at no financial cost between community property, in which assets are split equally between husband and wife, and separation of property, in which each spouse retains the assets in their name. Using multiple administrative and survey datasets, we document that a sizable minority of Italian couples chooses community property, and that their selection is systematic: couples in which the wife undertakes substantial household-specific investments are especially likely to elect community property, and the take-up of the regime declines as female labor market attachment increases. We show that these patterns are not consistent with a standard limited-commitment model of household behavior with divorce as the only outside option to marital cooperation. Instead, we develop a dynamic model of marriage, female labor supply, savings, and divorce in which spouses can engage in non-cooperative behavior prior to divorce, and pre-commit to an equal split of assets to promote the wife's household-specific investments. The estimated model implies that, as female labor force participation rises and the gender wage gap narrows, the value of this commitment falls. Lowering the cost of prenuptial contracting generates substantial welfare gains for couples and raises the value of marriage.