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Strategic non-marital cohabitation: theory and empirical implications

Abstract

Non-marital cohabitation is a rapidly growing global phenomenon. Prior literature examines the puzzling empirical regularity that premarital cohabitation is associated with higher divorce rates. Since cohabitation should yield improved match-quality information, one might expect the opposite. This result, and its recent weakening, have been explored empirically and produced theoretically using matching models. In this paper, we develop an intra-household bargaining model of alternative dating and cohabitation paths to marriage in which higher relationship exit costs for cohabitors relative to daters generates the observed higher divorce rate. We also show that asymmetric exit costs can produce rejection and generate exits that would not otherwise occur. In addition, we show that even when cohabitors have lower average marriage quality, expected utility for a given match quality is higher, and some utility enhancing marriages that would not have taken place without cohabitation will occur in its presence.

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Notes

  1. Cherlin et al. (2013) provide an excellent overview of the effect of the great recession on family structure in the USA, including comparison with the great depression. The 2010 Census “white-paper” on cohabitation also focuses on the effect of recent business cycles: http://www.census.gov/population/www/socdemo/Inc-Opp-sex-2009-to-2010.pdf

  2. We note that anticipated marriage exit costs will be embedded in the marriage payoff and therefore implicitly held constant. Though the ordinal rank of dating, cohabitation, and marriage exit costs are clear, changes relative to each other are less so. When a spouse has access to health insurance through the other’s work, loss of this benefit may be wedge between marriage and cohabitation exit costs. It may be tempting to dismiss exit costs from dating relationships as trivial, but the authors do not make this assumption. For example, the dense and extensive social networks of social media have non-obvious effect on dating exit costs.

  3. A Google search of “costs of leaving cohabitation” yielded thousands of relevant pages, including numerous free “Nonmarital Cohabitation Agreements” and many thousands of pages of financial and legal advice on how to avoid entangling assets. Typical are the following: http://www.legalzoom.com/legalforms/Cohabitation-Agreement.html

  4. A number of recent articles in the Demography literature challenge the quality of the retrospective data on cohabitation (see Hayford and Morgan 2008 and Brown and Manning 2009).

  5. Alm and Whittington (2003) empirically explore the tax consequences of marital versus non-marital cohabitation in the USA.

  6. While nothing specific triggers the first offer, we are simply modeling the point at which the conversation regarding the future begins. At this point, both will have a chance to express their preferences regarding cohabitation versus continuing to date or simply exiting.

  7. The ordering here is unimportant and is presented for completeness. The assumption is simply that one of the players suggests (C) and is met with agreement or not. This could theoretically be collapsed into a joint decision and not modeled as a game between players, but modeling players separately allows us to capture the cost of rejection for the player whose preferred relationship may be rejected. The authors believe that the availability of cohabitation as a viable option creates the possibility of discord and exit from a relationship that may not have otherwise occurred, and as a result, we chose to explicitly model this. Note also that either is also given the option to exit.

  8. Rejection costs in the C and D branches could be different but this complicates without enriching.

  9. Chiappori and Weiss (2006) provide a general equilibrium treatment of divorce and remarriage.

  10. 10 Drawing a normal distribution for illustrative purposes is arbitrary; symmetry of the f(q) distribution is a sufficient condition for our assumptions to hold, but not necessary.

  11. As a reminder, this setup informally models the phase in a relationship when decisions regarding the future are being made, but they do not simply arise out of the blue. We assume that conversations are ongoing which is why players have knowledge of the other’s preferences. So, when formal offers are made in our game, they will be made to efficiently avoid rejection costs, and the end result (regardless of which player is named 1 or 2) will be E if either prefers exit, D if neither prefers exit and both do not prefer C, and C if both prefer it. However, we believe it is important to illustrate the strategic play between players since players can affect the outcome with their play. For example, player 1 might suggest C even if player 2 prefers dating, but they may prefer staying together over exit, thereby giving player 1 an advantage in making the suggestion. Moreover, prior to the full revelation of knowledge, they may fear making the suggestion due to rejection costs even though both players may prefer escalation.

  12. Given that the game is one with complete information and is sequential, at each stage, there is one best strategy with the possibility of indifference for very specific parameters. However, our analysis is not about one single equilibrium outcome but about the comparative statics on the parameters that generate alternative equilibrium outcomes for the couple.

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Acknowledgments

We thank two anonymous referees and the editor for insightful and constructive suggestions and critiques. We also thank Aaron Johnson for exceptional research assistance with this project. Helpful comments by Jungmin Lee, Daniel Hamermesh, André Portela Souza, and Bill Curington are appreciated. The usual disclaimers apply

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Correspondence to Amy Farmer.

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Responsible editor: Alessandro Cigno

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Farmer, A., Horowitz, A.W. Strategic non-marital cohabitation: theory and empirical implications. J Popul Econ 28, 219–237 (2015). https://doi.org/10.1007/s00148-014-0517-9

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Keywords

  • Cohabitation
  • Divorce
  • Economics of the family
  • Welfare analysis
  • Game theory
  • Exit costs

JEL Classification

  • J12