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.”
Friday, January 29, 2010
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: