THE BECKER–COASE THEOREM RECONSIDERED

Abstract

Abstract:We reconsider the well-known Becker–Coase (BC) theorem according to which changes in divorce law should not affect divorce rates. We do that in a context of households that consume public goods in addition to private goods. For the Becker–Coase theorem to hold in this setting, utility must be transferable both within marriage and upon divorce, and the marginal rate of substitution between public and private consumption needs to be invariant in marital status. We show that if divorce alters the way some goods are consumed (either because some goods that are public in marriage become private in divorce or because divorce affects either the marginal rate of substitution between public and private goods or even the cardinalization of a spouse’s utility), then the Becker–Coase theorem holds only for very specific preferences. We conclude that, in general, divorce laws will influence the divorce rate, although the impact of a change in divorce laws can go in either direction.