How to choose a mate in Kansas

The Kansas State House of Representatives recently added language to a bill to include the option of covenant marriage. If the bill is passed into law, Kansas will join Arkansas, Arizona and Louisiana as the only states with covenant marriage laws

You can learn something about your potential mate if he or she wants a "traditional" rather than a "covenant" marriage:

...under the "traditional" marriage, a couple is entitled to a no-fault divorce after a six-month separation.

When a couple opts for the "covenant" marriage, they agree to waive their right to the no-fault divorce. In the event that the marriage does fall apart, only adultery, abuse, abandonment or a lengthy separation will allow a divorce to take place.

See The Contractual View of Marriage on how relationship-specific investment differentiates marriage from a series of meaningless spot market transactions.

Are there gains to delaying marriage?

Only for women:

...delaying marriage increases hourly wages of women by nearly four percent for each year they delay. Marriage timing has no impact on the wages of men. They find that delaying marriage may have costs as well. All else equal, women who delay marriage marry spouses with lower wages.

Why today's students are harder to teach

 The Chronicle of Higher Education has an answer:

... for a confluence of reasons, student attitudes have shifted. For one, what’s considered appropriate for a college professor to say and do in the classroom has changed dramatically, especially around topics of race, gender, and other forms of identity. For another, student deference to their teachers is not nearly as strong as it once was.

Students can be quick to judge a pedagogical choice as harmful, offensive, or superfluous to their education, say some professors, who question if their colleges, which they describe as having adopted a “customer is always right” philosophy, will have their backs if and when the customer is wrong.

In some circumstances, the choices or behavior criticized by students would have been “regarded as benign not very long ago,” said Angus Johnston, a historian of American student-activism who teaches at Hostos Community College of the City University of New York.

While this power shift can be “discombobulating” and “scary” for faculty members, especially older ones, he said, “that does not mean it’s a bad development.”

For example, when I teach the contractual view of marriage to MBA's, it is in a gender-neutral tone. Instead of "I gave him the best years of my life and he traded me in on a younger model," I say: 

If a couple decides to take advantage of economies of specialization, one primarily on a career and one primarily on childcare, the one specializing on childcare can be held up, should the relationship end and they have to re-enter the labor force.  To encourage these kinds of specialized investments in children, the marriage contract is designed to protect victims of hold up.  As the legal penalties for breach of the marriage contract have gotten smaller, we see less of this kind of specialization.  

NOTE:  this is correlation, consistent with evidence supporting the contractual view of marriage, but it could also be that the correlation is spurious, that times have changed, and couples want a more equal division of labor at the same time that the marriage contract has been weakened. 

REPOST: what is the cost of marriage?

Wednesday, August 22, 2007

What is the cost of marriage?

To an economist, the cost of an activity is what you give up to pursue it.

In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent.Steven Landsburg's classic column on Why Men Pay To Stay Married argues that the difference is a compensating differential, the "price" that men pay to women to compensate them for the relatively unpleasant job of marriage.

If men stay in marriages that cost them a lot of money, that just proves they really like being married. They're getting something they value, and they're paying for it.

When I first read this 8 years ago, I thought it was funny. Now, after 19 years of marriage, I wonder why the price is so low.

For more on marriage, see these posts.

What economics can teach us about love

Ben Stein (former FTC economist) offers these insights:

• If you invest caring, patience and unselfishness, you get those things back.
  
• High-quality bonds consistently yield more return than junk, and so it is with high-quality love.
  
• Stay with high-quality human beings. And once you find you that are in a junk relationship, sell immediately.
  
• The most appealing and seductive (that word again) exterior can hide the most danger and chance of loss.
  
• In every long-term romantic situation, returns are greater when there is a monopoly.
• The returns on your investment should at least equal the cost of the investment.
  
• Fall in love in haste, repent at leisure.
• Realistic expectations are everything.
  
• When you have a winner, stick with your winner. Whether in love or in the stock market, winners are to be prized.
• Have a dog or many dogs or cats in your life.
  

This advice seems to parallel that from my favorite textbook:

Marriages are vulnerable to the same type of post-investment opportunism that plagues commercial relationships. Parties invest time, energy, and money in a marriage, the kinds of investments that differentiate marriages from more casual, spot market transactions. These investments are valuable to the marriage parties but are largely sunk, in that they have a much lower value outside the relationship. The marriage contract penalizes postinvestment hold-up (i.e., divorce) and thus makes couples willing to invest more in the marriage.

Consider an apocryphal story of an economist and his fiancee. The two were receiving premarital counseling from a priest. The priest’s first question to them was ‘‘Why do you want to get married?’’ The economist’s fiancee answered, ‘‘Because I love him and want to spend the rest of my life with him.’’ The economist had a somewhat different answer: ‘‘Because long-term contracts induce higher levels of relationship-specific investment.’’ A year later, trying hard to find the right words to express how he felt about his wife, he wrote an anniversary e-mail—using a nice cursive font—declaring that his ‘‘relationship-specific investment was earning an abnormally high rate of return.’’

Sign a marriage contract only if you are going to get something out of it

A former student alerts me to a NY Times article, that seems to follow on to previous post:

For centuries, marriage was viewed as an economic and social institution, and the emotional and intellectual needs of the spouses were secondary to the survival of the marriage itself. But in modern relationships, people are looking for a partnership, and they want partners who make their lives more interesting.

Are single parents causing inequality?

The Atlantic has an interesting story whose causal links go something like this:

Single parent households make less money.

This leads to less investment in kid's education which leads to lower levels of human capital which leads to lower income: 

The decline in marriage rates among poorer men and women robs parents of supplemental income, of work-life balance, and of time to prepare a child for school. Single-parenthood and inter-generational poverty feed each other. The marriage gap and the income gap amplify one another.

Better educated, higher-income men and women tend to marry each other which perpetuates the cycle:

The marriage inequality crisis creates a virtuous cycle at the top and a vicious one at the bottom. It pushes educated and non-educated Americans into entirely different worlds.

Bargaining for a Happy Spouse

Leora Frieberg and Steven Stern have a new paper on intra-household bargaining titled, "Marriage, Divorce, and Asymmetric Information." Survey data ask spouses two questions that essentially get at:

• "How happy are you in this marriage?"
• "How do you think your spouse answered this?"

They compared these answers to divorces rates five years later. Of course, they find that people unhappy in their marriages divorce more often. But also, people who are more wrong (i.e., information is more asymmetric) about their spouse also divorce more often. 

How much would you give up to avoid a divorce? When you allow that marriages involve myriad small bargains everyday (e.g,, doing dishes, picking up dirty clothes, letting him/her choose the restaurant or movie), you get even more interesting results:

Our results show that people forgo some utility in order to make their spouses better off and, in doing so, offset much of the inefficiency generated by their imperfect knowledge. Thus, we find evidence of asymmetric information and interdependent utility in marriage.

This last sentences is as close as economists come to saying that husbands and wives might just love each other.

Protectionism begets discrimination

Good post on the zero-sum fallacy behind protectionism:

The Employ American Workers Act (a part of the stimulus bill) makes it difficult for companies helped by the federal bailout plan known as TARP to hire skilled immigrants.

Policies like these, and the discrimination that usually goes with them, are fueled by the mistaken theory that a job held by an immigrant is a job that cannot be held by an American. We will ultimately see the Employ American Workers Act as unjustified, just as we now regret the “marriage bars.”

The “marriage bar” is a discriminatory employment practice that was common years ago, even if it seems unfamiliar today. The marriage bar actually had a couple of versions: a “hire bar” in which a woman would not be hired if she were married, and a “retain bar” in which single female employees were fired when they married.

Is everything for sale?

In previous posts we have talked about the "cost" of marriage, what a man and a woman give up to be in one. And now we have this conversation on Craig's List between a woman and a potential mate.

Okay, I'm tired of beating around the bush. I'm a beautiful (spectacularly beautiful) 25 year old girl. I'm articulate and classy. I'm not from New York. I'm looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don't think I'm overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 - 250. But that's where I seem to hit a roadblock. 250,000 won't get me to central park west.

My colleagues in the divinity school would criticize what they call the "commodification of relationship," but when you try to sell yourself, it seems only fair that you get treated like a potential investment.

...what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here's the rub, your looks will fade and my money will likely continue into perpetuity...in fact, it is very likely that my income increases but it is an absolute certainty that you won't be getting any more beautiful! ...

So in Wall Street terms, we would call you a trading position, not a buy and hold...hence the rub...marriage. It doesn't make good business sense to "buy you" (which is what you're asking) so I'd rather lease. In case you think I'm being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It's as simple as that. So a deal that makes sense is dating, not marriage.

I wonder if the woman would profit from reading our earlier post on strategy from Whole Foods' CEO, John Mackay:

...we have not achieved our tremendous increase in shareholder value by making shareholder value the primary purpose of our business. ... In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of.

The man also is wary of adverse selection the problem caused when, in this case, the seller has more information the buyer.

...I wonder why a girl as "articulate, classy and spectacularly beautiful" as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn't found you...

The contractual view of marriage

One of my former students asked me to write up the contractual view of marriage that I teach in my classes.  Here it is:

POST INVESTMENT HOLDUP ROUTINE (I deliver this after I describe the problem of post investment hold-up and how vertical integration can re-establish the incentive of parties to make relationship specific investments)

When I got engaged, my fiance and I had to go through pre-marital counseling with a priest, and he asked us why we wanted to get married.

I said “Long-term relationships induce higher levels of relationship-specific investment.”

The priest looked as if he didn’t understand, so I said “you know, the kind of investments that differentiate a marriage from a series of meaningless spot-market transactions.”

On our first anniversary, my wife gave me a card declaring that “her relationship-specific investment was earning an abnormally high rate of return.”

Who wants to get married in Mexico?

Leonel Luna, a Mexican legislator has proposed 2 year renewable marriage contracts to combat the high cost of divorce in Mexico:

"Almost 50% of couples in Mexico City end up in divorce," Luna says. "What we're trying to do is acknowledging reality and creating a mechanism that will allow couples to end their marriage without going through the additional pain and suffering of a legal battle."

If you cannot immediately spot two problems with this contract, you are not ready to get married:

• Problem 1:  Post-investment hold-up (who would make relationship-specific investment with a short term contract?)
• Problem 2:  Adverse selection (what do you learn about a potential spouse who wants a renewable marriage contract

What is the cost of marriage?

To an economist, the cost of an activity is what you give up to pursue it.

In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent.

Steven Landsburg's classic column on Why Men Pay To Stay Married argues that the difference is a compensating differential, the "price" that men pay to women to compensate them for the relatively unpleasant job of marriage.

If men stay in marriages that cost them a lot of money, that just proves they really like being married. They're getting something they value, and they're paying for it.

When I first read this 8 years ago, I thought it was funny. Now, after 19 years of marriage [originally posted in 2007], I wonder why the price is so low.

Contracting Versus Love

Economist Betsey Stevenson explains why "family formation," econo-speak for marriage, shares much with contracting between firms.

How important are fidelity, loyalty, generosity, kindness? As an economist I think that a good marriage, like a good employment relationship, has shared vision, common interests, complementary abilities, and gains from specialization.

A long-term contract can facilitate relationship-specific investments. When I go over this in class, some bright student usually asks about the "spot market" in coupling and why it is usually illegal.

US leads the world in single-parent households...

... and the results are statistically disastrous.  

Summary of three pieces on Economist Melissa Kearney's Research

• Freakonomics Radio: When did marriage become a luxury good?
• Related: Why Did You Marry That Person? (Replay)
• Related: Why Does the Richest Country in the World Have So Many Poor Kids? (Update)
• Related: The Fracking Boom, a Baby Boom, and the Retreat From Marriage
• NYTimes: The Explosive Rise of Single-Parent Families Is Not a Good Thing
• Children from single-parent homes have more behavioral problems, are more likely to get in trouble in school or with the law, achieve lower levels of education and tend to earn lower incomes in adulthood. Boys from homes without dads present are particularly prone to getting in trouble in school or with the law.
• Income differences are not the only driver of differences in outcomes. A second committed adult in the home can contribute considerable time and energy to taking care of children.
• We can and should do more as a society to try to compensate for these gaps in parental investments. But again, it is highly unlikely that government or community programs could ever provide children from one-parent homes with a comparable amount of the supervision, nurturing, guidance or help that children from healthy two-parent homes receive.
• That means a generation of children will grow up more likely to get in trouble and less likely to reach their potential than if they had the benefits of two parents in their homes.
• NYTimes: The One Privilege Liberals Ignore
• Families headed by single mothers are five times as likely to live in poverty as married-couple families.
• Children in single-mother homes are less likely to graduate from high school or earn a college degree. They are more likely to become single parents themselves, perpetuating the cycle.
• Almost 30 percent of American children now live with a single parent or with no parent at all. One reason for the sensitivities is large racial disparities: Single parenting is less common in white and Asian households, but only 38 percent of Black children live with married parents.

First cousin marriage bans lead to higher incomes

 The theory is right out of chapter 1: voluntary transactions create wealth because they move goods and services to higher-valued uses.  In a kinship society (no first-cousin marriage bans), there are fewer people with whom to transact, and this means that income is lower.  

HT:  MarginalRevolution.com

Compensating Differentials in the Marriage Market

Potential mates differ in what they bring to the relationship. In online dating, youth, especially for women, appears to be sought after. In a forthcoming Journal of Labor Economics article, Corine Low applies the Indifference Principle to estimate how much more income a woman must earn each year she ages to remain equally attractive. Here is the abstract.

This paper quantifies the causal negative impact of age on women’s marriage market appeal using an experiment where real online daters rate hypothetical profiles with randomly assigned ages. Truthfulness is incentivized through the experiment’s compensation: participants receive professional dating advice customized according to their ratings. The experiment shows that for every year a woman ages, she must earn $7,000 more annually to remain equally attractive to potential partners. This preference appears driven by women’s asymmetric fertility decline with age, as it is present only for men without children and who have accurate knowledge of the age-fertility trade-off.

Does this reduce the value of the marriage contract?

Divorce is costly to the parties getting divorced, in part, to make it less likely that parties will engage in opportunistic behavior ("I gave  him he best years of my life and he traded me in for a younger model.")  Will divorce insurance weaken the incentives to invest in relationship-specific assets, the kind of investments that differentiate marriage from a series of meaningless spot market transactions?

The casualty insurance is designed to provide financial assistance in the form of cash to cover the costs of a divorce, such as legal proceedings or setting up a new apartment or house. It is sold in “units of protection.” Each unit costs $15.99 per month and provides $1,250 in coverage. So, if you bought 10 units, your initial coverage would be $12,500 and you’d be paying $15.99 per month for each of those units. In addition, every year, the company adds $250 in coverage for each unit.

Then, if you get divorced and your policy has matured (see below for the maturation rules), you would send WedLock proof of your divorce. In return, you’d receive a lump sum of cash equivalent to the amount of coverage you had purchased.

Quiz: why are divorce filings spiking in China?

Its the incentives, stupid:

Divorce filings shot up here and in other big cities across China this past week after rumors spread that one way to avoid the new 20 percent tax on profits from housing sales was to separate from a spouse, at least on paper.

What does this imply about the value of a marriage contract?

Adverse Selection in Marriage Markets

Someone is having some fun over at "Mail Order Husbands" which appears to be a spoof on the notion of mail order brides. Perhaps adverse selection is a bit more severe among men. Ladies, here are just three of the gentlemen to select from. The others are hilarious too.