To explain trends in dowry levels in Bangladesh, we draw attention to a widespread 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 in which it is only payable upon divorce. We develop a model of marriage contracts
in which mehr serves as a barrier to husbands from exiting marriage, in which dowry can be
divided into a standard price component and a term that ex ante compensates grooms 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
models in which dowry serves only the traditionally considered roles of price or bequest. To test
the model’s 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, hence our study provides
strong evidence of the role of legal rules governing marital separation in explaining dowry trends
in Bangladesh.
