Marriage, Divorce, and Asymmetric Information

Steven Stern

In answers to unique questions from the National Survey of Families and Households, spouses reveal information about the value of their options outside of marriage as well as their beliefs about the value of their spouses’ outside options. We use this data to demonstrate several features of household bargaining. First, we document marriages in which one spouse would be happier outside the marriage and the other spouse would be unhappier. This provides a new source of evidence that bargaining takes place. Second, we investigate the extent to which information asymmetries influence bargaining. This shows that spouses do in fact have private information about their outside options. We estimate a model of bargaining that allows us to quantify the extent to which asymmetric information generates bargaining inefficiencies and to simulate the impact of a change in divorce costs. Third, we then proceed to incorporate caring preferences in the empirical model. When we estimate our basic specification, we find that the model limits behavior by making spouses drive too hard a bargain with each other. After generalizing the model to include interdependent utilities, our preliminary results quantify how much utility agents forego in order to raise the utility of their spouses. To sum up, we find evidence about two key features of marriage — asymmetric information and interdependent utility — which receive a great deal of attention in not only the economics of the family but also many other aspects of interpersonal relationships.