Economic Incentives and Learning in Relations­hip Formation

The paper presented in this Mannheim Applied Seminar investigates the role of learning — the process where partners gather information about their compatibility—played in explaining the marital transition. To this end, the author first exploits a pension reform in Sweden that penalises late marriages, and provide empirical evidence that 1) cohabiting couples values a unit time more when they just met than if they lived together for a long time, 2) Couples married quicker divorced quicker, and 3) Couples whose marriage is incentivised by the reform divorced quicker. These stylised facts are aligned with a theory of learning about match quality. The author then develop a structural model with endogenous cohabitation, marriage and divorce matched to the Swedish marriage market and the behavioural response of the pension reform. In the model, agents search for a partner, and upon meeting, may cohabit and learn about their match quality before making  a commitment that is costly to break.