How Does Legalizing Divorce Effect Resource Allocation within Households? The Case of Chile

Misty Heggeness, University of Minnesota

In recent years, many economists have argued the unitary household model, which assumes households maximize a single utility function given an overall household budget constraint, does not accurately describe the economic behavior of households. Instead, they argue, models should acknowledge that household members' individual bargaining power influences the allocation of household resources. This study examines the effects of exogenous changes in family policy and administrative processes in Chile on the allocation of resources towards children’s education. Specifically, the legalization of divorce and family court wait times for divorce are analyzed. Using panel data and a difference-in-differences approach, I show that implementing a pro-female divorce law shifts the bargaining power within married couple households towards the wife, as does the speed with which family courts process divorce cases. By increasing women's bargaining power, both family policy and administrative processes have had an influence on household consumption decisions relating to children's education.