Muslim family law, prenuptial agreements and the emergence of dowry in Bangladesh

Preliminary: Please do not cite without authorspermission Existing theoretical and empirical research on dowries has di ¢ culty accounting for the large changes in dowry levels observed in many countries over the past few decades. To explain trends in dowry levels in Bangladesh, we draw attention to an institutional feature of marriage contracts previously ignored in the literature: the mehr or traditional Islamic brideprice, which functions as a prenuptial agreement in Bangladesh, due to the default practice of being only payable upon divorce. We develop a model of marriage contracts in which mehr serves as a barrier to husbands from exiting marriage, and an important component of dowry is a term that ex ante compensates the groom for the cost of mehr chosen by the couple. The contracts are welfare improving because they induce husbands to internalize the social costs of divorce for women. We investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce, and show that both decrease when costs of divorce increase for men. This is in contrast with the predictions of traditional models of dowry. To test the models predictions empirically, we use novel data collected on marriage contracts between 1956 and 2004 from a large household survey from the Northwest region of the country, and make use of key changes in Muslim Family Law between 1961 and 1999. We show that major changes in dowry levels took place precisely after the legal changes, corresponding to simultaneous changes in levels of mehr. We argue that the documented pattern of responses can only be explained if dowries include a component of compensation for mehr