Ahu Gemici

Despite the large occurrence of cohabitation and its strong link to important behavioral outcomes, it has received little attention in the literature. In this paper, we develop and estimate a dynamic model of household formation and dissolution, fertility and labor supply and use the estimated model to perform policy experiments that investigate the welfare implications of different institutional arrangements regarding divorce regulations. The point of departure from the previous literature is that we take into account the intermediate stage of non-marital cohabitation. For many couples the choice is not just between being married and remaining single, but there is a third option that is non-marital cohabitation, and it provides a tradeoff between the advantages and disadvantages of getting married and remaining single. We find that labor market outcomes, as well as marital sorting patterns are strongly linked to individuals' choices regarding different living arrangements. Our goal is to use the estimated model to assess the welfare implications of inefficiencies that may arise in co-residential relationships due to lack of commitment.