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Journal of Population Economics

, Volume 29, Issue 2, pp 421–455 | Cite as

Relational contracts for household formation, fertility choice and separation

  • Matthias Fahn
  • Ray Rees
  • Amelie Wuppermann
Original Paper

Abstract

This paper applies the theory of relational contracts to a model in which a couple decides upon fertility and subsequently on continuation of the relationship. We formalize the idea that within-household-cooperation can be supported by selfinterest. Since the costs of raising children—a household public good—are unequally distributed between partners, a conflict between individually optimal and efficient decisions exists. Side-payments can support cooperation but are not legally enforceable and thus have to be part of an equilibrium. This requires stable relationships and credible punishment threats.Within this framework, we analyze the effects of separation costs and post-separation alimony payments on couples’ fertility decisions. We derive the predictions that higher separation costs and higher alimony payments facilitate cooperation and hence increase fertility. We present empirical evidence based on a recent German reform that reduced rights to post-divorce alimony payments. We find that this reform reduced in-wedlock fertility.

Keywords

Household economics Relational contracts Fertility Alimony payments 

JEL Classification

C73 D13 J13 

Notes

Acknowledgments

We thank the editor Alessandro Cigno and two anonymous referees for many helpful comments and suggestions. Furthermore, we thank Patricia Apps, Asnia Asim, Niko Matouschek, and participants at seminars at the University of Munich and Stockholm, the 2009 Annual Conference of the European Association of Law and Economics (Rome), the 2009 Conference of the German Economics Association (Magdeburg), the 2010 Meeting of the American Law and Economics Association (Princeton), the 2010 Workshop on Economics of the Family (ANU, Canberra), the 2011 CESifo Conference on Applied Microeconomics (Munich), and the 2011 Conference on the Economics of the Family (Paris), for many helpful comments on earlier versions of this paper. Anna-Catharina Wedde provided excellent research assistance. Remaining errors are our own. Matthias Fahn gratefully acknowledges financial support from the Deutsche Forschungsgemeinschaft through GRK 801.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.University of MunichMünchenGermany
  2. 2.University of WarwickCoventryUK
  3. 3.University of MunichMünchenGermany

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