The effect of divorce costs on marriage formation and dissolution

Exploiting the theoretical parallels between the matching of workers to jobs in the labour market and the matching of individuals in the marriage market, we use a search theoretic model of marriage formation and dissolution to examine the effect of divorce costs on both decisions. By introducing learning at both stages of the marital decision process, we show that divorce costs not only affect the probability of divorce but also the probability of marriage. Interestingly, to what extent divorce costs affect the marital status distribution depends on the information regarding the quality of the potential marriage that individuals receive while encountering marital offers. JEL classification: J12.