An Equilibrium Analysis of the Decision Whether to Date, Cohabit or Marry

In stark contrast to 60 years ago, it is now commonplace for people to cohabit with a partner to whom they are not married. Despite its pervasiveness, there has still been little research into what triggered the rise in cohabitation, the behavioural impacts of cohabitation and how it fits into the standard economic theory of the family. I will investigate these questions both from a theoretical perspective using a search framework, and empirically using US data from the 1979 cohort of the National Longitudinal Survey. In this process, I will address whether cohabitation is a distinct state from marriage, how behaviour differs in cohabitation compared to marriage, whether cohabitation is temporary or long-term and what institutional change led to the rise of cohabitation.

The research considering cohabitation is limited and mostly empirical, suggesting motivations without a formal theoretical underpinning. My goal is to build a formal model to enable me to answer the following questions: i) Why has cohabitation become so pervasive? ii) What caused the rise in cohabitation? iii) What implications does it have for household welfare and government policy? I will use a search framework, which has been widely used to explore marriage and divorce. It will easily extend to include an additional relationship type. It is the natural choice as it explicitly models why the dating process exists- to obtain information about a potential partner. This will enable me to explore how relationship choices have evolved in a systematic way. Once I have developed my model I will use data to explore the causes and behavioural impacts of cohabitation. I will use the National Longitudinal Survey 1979 cohort dataset which contains detailed information about relationships and fertility from samples of American youth born between 1957-64. Data regarding cohabitation started being collected in 1990 although more granular information was collected from 2002. Focusing on the US will allow me to compare my analysis with existing research and take advantage of large institutional variety as family law differs state by state. To motivate my questions, I will set out the relevant research highlighting remaining questions and where I will contribute. To answer my first question it must be determined what purpose cohabitation serves, how is it distinct from dating and from marriage? Whether it is transitory or a possible permanent state? Conceptually cohabitation is obviously different from dating. The early research stated the main benefits of marriage come from sharing a home, which facilitates both joint consumption (sharing of household goods) and joint production (using the division of labour to exploit comparative advantage and increasing returns). It is thus natural to attribute these benefits to cohabitation on top of the utility from spending time together which occurs both when dating and cohabiting. It also seems appropriate to assume separation costs of dating are smaller than those of cohabitation. The distinction between cohabitation and marriage is less straightforward and requires exploration. Previous research has assumed that ending a marriage is costlier in financial and psychological terms than cohabitation. Thus, since cohabitation has become socially acceptable there must be additional benefits from marriage than those from living together to explain why people still decide to marry. Typically, it is assumed that marriage can be used as a commitment device. Lundberg and Pollack suggest that these additional costs create the incentive for people to adjust their behaviour to reduce the likelihood of separation. This enhances the benefits enjoyed when cohabiting; greater cooperation in household production and consumption increased willingness to extend credit and provide insurance and greater incentive to make relationship-specific investments such as childbearing.