Saturday, November 15, 2014

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

9 comments:

  1. Adverse selection arises when one party to a transaction is better informed than another. With marriage being more of an agreement after selection has taken place, I have some hesitation to your classification.
    The agreement in the entry presented included rising cost of divorce as a reason for these 2-year contracts. Wedding service providers have been offering the option of having the process insured. It is within that scope that I believe that adverse selection can play a part.
    There is no morale testing to find out if parties are in love or what level, if the seat is involved or is one or both parties just crazy. With the shortened 2-year contract could possibly help some who were unknowingly destined for failed marriages, it may prove to hinder and repel openness, and comradeship deserved with a 50/50 chance or better.

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  2. There also seems to be a moral hazard issue. (And in terms of marriage, the issue could literally be one of "morality".)

    Moral hazard can happen when an individual (or firm, or group) change their behavior to the detriment of others *after* an agreement or transaction has taken place. In this case, it would arise after the marriage.

    A couple could get married with full intention of being a faithful, loving, supportive family. However, after six months, when both are faced with temptations to undermine their marriage, they might then give in to them knowing they have an easy way out of the marriage in just another 18 months (when they might have been faithful to their vows knowing the high cost of divorce they'd otherwise face).

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  3. First of all, I’m in favor of the idea of a renewable marriage contract (probably a longer term than 2 years, though). I admit that I believed I was the first one to think of it. However, I compared “my” idea to buying/leasing a new car. When obtaining a new car, we have the option to purchase one or lease one for a period of several years. I am actually in this predicament right now. There are avoidable costs in both scenarios. If one leases a car, there are short-term costs to be avoided, such as regularly scheduled maintenance costs. If one buys a car, they avoid the increased payments of leasing. There are negatives with both, though. Leasing a car can be considered a “sunk” cost. At the end of the term, the investment has not increased the assets of the leaser. However, when purchasing a car, the buyer assumes a great deal of risk (even if the car is under warranty).

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  5. Personally, I like the fact that the Mexican government is even trying to tackle the problem of expensive and painful divorce proceedings.

    Each day millions of couples get married with the dream of happily ever after. And no matter what their experience elders tell them, that marriage is a constant negotiation, with highs and lows like any business transaction (which marriage is) they still believe they can beat the odds and be wildly happy, everyday forever.

    So yet another business, the business of divorce is a painful undertaking not to mention expensive. While it has been reported that the divorce rate has been declining in America, the cost of divorce is still very high.

    Marriage was once a spiritual union but is now regulated by the government. Therefore the government should have laws in place that protect each party from huge legal expenses and prolong court battles over money and property. (Custody battles are another manner).

    In New York, anything you bring into the marriage is yours; as long as individuals don’t co-mingle funds or property when you marry. Of course the courts allow couples to negotiate this point. That should not be allowed. The law is there and should be finite.

    All property and money that is garnered during the course of the marriage (much like business partners) is split, after expenses between both parties. This should include the expense of the divorce itself, but it doesn’t. Each can incur their own expense.

    I have a friend who was just divorced. Her husband’s lawyer rejected an offer last March, but after $25,000 in legal fees – on both sides – they accepted that same offer in December.

    I think when two people come into a marriage with considerable personal property and wealth, a contract is necessary – a prenup – to secure each other’s assets. This is very common with individuals marrying later in life. There is nothing wrong with protecting your assets. And it does not say anything negative about the person who asks for such an agreement to be signed.

    If the government wants to regulate marriage, then divorce should not be difficult and expensive. It is inevitable that people will get divorced.

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  6. This is an interesting idea. Personally, I have already heard of proposals like this one, the first time to hear of this was in my home country, had heard it from my father, he was a legislator almost until his death.
    He argued more for the cost of a divorce, which did not represent high costs. He made proposal as element that would help keep the spirit of marriage to a high level.
    The single suspicion of the need for the renewal of the same, would make for couples to have the incentive, to the dissatisfaction of one of the parties, would take them to the automatic separation. This would be what would automatically force the conclusion of the union.
    To have knowledge of the lost act by default, would take you to a higher levels of effort and interest in your life partner or husband, having good treatment be an incentive to keep this within the union contract, and your interest in the renewal of the same.
    Other angles can be seen as part of it, such as the lack of effort of one of the parties to make the same contract form scrap more easily, in contrast of the whole process and cost associated with divorce.

    References: Froeb, McCann, Ward, Shor: (2014) Managerial Econonics. A Problem Solving Approach, Ohio: South Western Cengage Learning

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  7. This is probably one of my favorite blog posts that I have read on this site. It does in fact bring up so many issues, morality, the government and control it has over our lives, etc. I do agree with parts of all the replies that I’ve read before. It is true that “if you cannot immediately spot two problems with this contract, you are not ready to get married.” Most people don’t go into marriage thinking “this is only going to last 2 years” but unfortunately it happens. This is literally the case in Mexico. So maybe it is not a bad thing. Renewable contracts or not some marriages are going to last a long time some are going to end- so why not make it cheaper. If it was the other way around and you HAD to stay married for certain time or face a penalty everyone would be up in arms and the government would make a lot of money. The second problem of adverse selection…people change, circumstances changes; at least you don’t have to go through a crazy divorce and both sides lose all their money. I could see this cause a lot of fraud or people marrying people for their money and leaving them two years later. This truly is a no win as there are major pluses and minuses to both sides of this interesting discussion.

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  8. This is an interesting proposal that the Mexican legislator has proposed. “The first thought that comes to my mind reading this article, is that it reminds me of a car lease!” I’m not in favor for this proposal due to the fact that marriage shouldn’t be taken lightly and as Luke Froeb mentioned, “If you cannot immediately spot two problems with this contract, you are not ready to get married.” If you’re not ready to get married or even have the slightest doubt about marriage, then you, yourself are not ready for this “long-term / life investment.” That’s what dating is for, trying out the relationship before making a life-long commitment.
    It’s sad to know that most marriages don’t last as long as they used too and because I think the government has been seeing an increasing rate of divorces, they’re trying to find some way to capitalize on it. I believe when you get married, it’s simply a business transaction to formalize and legalize current assets and soon-to-be assets and that there are things that need to be considered between both parties (i.e. religion / beliefs, living situation, finances, etc.). Applying a 2 year renewable contract on a marriage sounds like some type of monetary scam that the government is creating; like some type of added insurance you can purchase before the marriage, for in the event the marriage doesn’t work out (in 2 years), the parties can split-off with a “not as an expensive divorce”- but am sure there are some hidden fees still that will arise. Also, is there a cost to have this marriage contract put in place? And if the couple decides to stay or ‘renew’ the marriage contract and there was a payment given upfront, what happens to those funds? Does the government keep it? Any relationship, from dating to marriage, is already considered a sunk cost. Obviously, any relationship consumes time, energy and effort which cannot be recovered. Thus, this is also a risk that everyone takes and an unavoidable cost no matter the duration of the relationship. And once marriage is put into place, there is the vulnerability of the post-investment hold-up. Whether or not a termed marriage contract is put in place, a higher price will always have to be paid to undue a marriage. And that’s for sure unavoidable!

    References
    Froeb, L., & McCann, B. (2014). Investment Decisions: Look Ahead and Reason Back. In Managerial economics: A problem solving approach (3rd ed.). Australia: South-Western Cengage Learning.
    Pak, J. (2011, May 3). On Sunk Costs and Love. Retrieved June 11, 2015, from http://www.huffingtonpost.com/jane-pak/on-sunk-costs-love_b_856627.html

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  9. This article explains two stated potential problems (1) Post-investment hold-up and (2) Adverse selection. This is a case of moral hazard wherein one party is unwilling to commit to the required terms of the contract. It would give the impression that it is a one-sided affair and both parties don’t stand to gain, or that one party has something to hide. The other problem is a case of adverse selection through signaling, wherein one party is already signaling their intent to bail out of a supposedly long term contract. Either way, I find it comical that a solution to known problem will become worse than the existing problem. The other factor to consider is the variables surrounding such an arrangement. Because marriages is a long term commitment and supposed to include long term elements, kids, mortgages, etc, how would those be factored in a two-year predicted relationship? Marriage should not follow business relationship t trend.

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