Economic Incentives and Family Formation

Audrey Light, Ohio State University
Yoshiaki Omori, Otaru University of Commerce

We identify the importance of a broad set of economic factors in driving individuals’ decisions to marry, cohabit and divorce. Most studies of union formation consider such factors as schooling attainment, employment status, and wages. We broaden the focus to economic costs and benefits conferred by law on married couples. Upon marrying, couples typically incur changes in their income taxes, face lower costs if one partner dies, incur changes in their welfare benefits, and secure property rights in the event of divorce. We wish to learn whether individuals are more likely to choose marriage over the alternatives when the benefits associated with civil marriage are large. We use data from the NLSY79 to estimate a sequential choice model of cohabitation, marriage and divorce decisions, and exploit exogenous variation arising from cross-state and cross-year differences in the relevant laws and institutions to identify the effects of “legal factors” on union-forming decisions.