The Coase Theorem and Divorce; Or, the Familial Economy of Hate
In The Logic of Life, Tim Harford repeats an argument about divorce that I’ve often heard economists make. One of the challenges that Gary Becker tackled, he explains, is the sharp increase in divorce. Tim goes on:
Some commentators have blamed changes in divorce laws for the trend: Ronald Reagan, then governor of California, signed a bill introducing ‘no-fault’ divorce in 1969, meaning that either partner could simply walk away from the marriage by demanding a divorce… But Becker knew that couldn’t be the answer: If the husband wanted a divorce to run off with his mistress, no-fault divorce didn’t make it easier for him to do that, just cheaper. Before no-fault divorce, he had to get his wife’s agreement, which might mean higher alimony payments. This reasoning suggests that no-fault divorce rules wouldn’t change divorce rates at all. The only thing that would change was who paid whom to get the divorce. (emphasis mine)
This is of course the application of the Coase Theorem to divorce: If a couple’s total surplus is higher apart than together, then with zero transactions costs, the assignment of property rights only changes distribution, not outcomes.
Tim argues that the empirical evidence supports this view. Perhaps it does. But most economists who make this argument have no idea what the data says; instead, as Tim says of Becker, they “know” that changing divorce laws “couldn’t be the answer.”
Unfortunately, the Coasean argument overlooks a pretty obvious fact: Couples contemplating a divorce often hate, loathe, and despise each other. We’ve all heard of stories of divorcing couples deliberately destroying objects of sentimental value to each other. Indeed, many couples in this situation wallow in petty spite; they can’t stop bad-mouthing each other to anyone who will listen.
With these facts firmly in mind, how confident are you that Coase’s zero transactions costs assumption is remotely true? At risk of sounding Austrian, transactions costs are subjective: Bargaining with your mortal enemy hurts. And while you might think that people would be eager to part from their mortal enemy, many decaying marriages contain at least one person eager to torture the other for as long as possible. (Yes, it’s ugly, but don’t blame me – I’m only a messenger!)
Maybe no-fault divorce didn’t matter. Maybe divorce law never matters. But I’m skeptical. How about you?