Friday, August 28, 2009

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.

1 comment:

  1. It is the relationship specific investments that differentiate marriage from a series of meaningless spot market transactions.