Suppose the daily benefits to being married or divorced to some married couple a

Question

Suppose the daily benefits to being married or divorced to some married couple are given in the following table:

Husband wife
married $60 $50
divorce $75 $40

a) Under a strict divorce law that requires both the husband and wife to agree to the divorce in order for it to happen, will the couple stay married?why?
b)If there is no divorce law and either the husband or wife can end the marriage, will the couple stay married?why?
C)what is the socially optimal decision?How does the Coase Theorem ensure the socially optimal decision is chosen?
d)If $60 is replaced by $40, $50 is by $40, $75 is by 30 and $40 is by $60 in the above table,what would be your answer of question (a), (b) and (c).

Explanation / Answer

a) The divorce will not happen due to the fact that the husband benefits at a total of $15 per day while the wife loses $10 per day from divorce, and therefore they will not agree. b) The couple will not stay married, assuming all other things constant, since the husband benefits more from divorce than he does from marriage. c) The socially optimal decision has to do with both totals and their additive direction (gain or loss?), and in this case, the couple and therefore society will benefit $5 per day through divorce. The Coase theorem ensures the socially optimal decision is chosen through the husband's voluntary payment to the wife for a divorce at at least more than $10 a day, the amount the wife loses per day from a divorce. d)Husband wife Given these new statistics the answers change accordingly: married $40 $40 divorce $30 $60 a) The couple will still not go through with a divorce since the husband loses $10 a day, while the wife gains $20 a day through divorce. b) The couple will not stay married, assuming all other things constant, since the wife benefits more from divorce than she does from marriage. c) The couple all together and therefore society will gain $10 per day through divorce. The Coase theorem ensures the socially optimal decision is chosen through the wife's voluntary payment to the wife for a divorce at at least more than $10 a day, the amount the husband loses per day from a divorce.

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