Thursday, August 16, 2007

Marriage, and the Theory of the Firm

I have never understood people who don't get married. (My boy Frank got me thinking about this, by the way)

To me, it just seems like a tautological application of the Theory of the Firm, transactions cost edition.

Securing sex with someone who knows what you like, and looks good enough to make you like it, arranging for distribution of effort in household services, care of children....There are so many things that are costly and aggravating to try to secure on the spot market, every day.

This raises the question of the size of the firm, of course. Coase's principle is that at the margin the firm will expand until the marginal transaction is more expensive to arrange inside the firm than through a market. I have one wife; my wife has one husband. One could imagine other arrangements (that's mighty bigamy!), but look at the transactions costs encountered by Cedric the Entertainer.

There have been times my wife and I considered dissolving this firm, but not seriously. We have been married 21 years, and have negotiated arrangements on nearly every margin that have essentially zero transactions costs. We don't have arguments, because we both know how it would end up. (Sometimes I would win, sometimes she would, but we know the moves and the result, so we don't start).

Are there hold-up problems? Are there times she looks at other men and thinks, "MMM, he looks yummy!" You bet. But the expected costs of cheating involve some chance of forfeiting extremely large benefits that extend far into the future.

I do nearly all the cooking, and have always been able to spend a lot of time with the children. I drive car pool, and often go to school functions. I do these things partly out of love for the children, but also because in exchange I receive extremely high quality services of many kinds.

My wife is an attorney for the Federal government, and in addition manages the logistics of the household with remarkable skill and efficiency. She does all the finances, runs the calendar, does all the paperwork for schools, takes care of medical appointments, and files all insurance and other clerical work. She does all the shopping, and cleans the house. She is extraordinarily physically attractive (in my view), and is interesting to talk to on almost any subject.

Divorce, or an "open relationship," would be tremendously costly. (Yes, she's a lawyer, so it would be expensive in terms of money, but that's not what I mean.) I couldn't possibly work through the hold-up and monitoring costs of contracting for household cleaning, managing books, doing taxes.

Marriage has been analyzed through a theory of the firm, or contracting, perspective. (Becker, Gary S. A Treatise on the Family. Cambridge, Mass.: Harvard
University Press, 1991; Becker, G. S. (1973). “A Theory of Marriage: Part I.” Journal of Political Economy 81(4): 813-46; Becker, G. S. (1974). “A Theory of Marriage: Part II.” Journal of Political Economy 82(2, Part II): S11-S26.

So why pretend economists are too stupid to know the theory of the firm?

Consider this paragraph, which Frank highlighted in his post:

He is no less willing to explain the motivations of the novel's academics, who he maintains are "shameless exaggerations of campus types" (though anyone who has spent time on campus recently might find them surprisingly realistic). There is, for instance, the economics professor in an "open" relationship with his wife who "is not even sure there is a rational case to be made for traditional marriage any more." Mr. Carter, who in his life as a Christian intellectual would have no trouble mounting a spirited defense of such old-fashioned arrangements, tells me: "It's not that by his own lights he's amoral. It's that he would find most of what others would call immorality to be inefficient interference with the pursuit of happiness." (from WSJ interview with Stephen Carter)

Morals are names for equilibria of games we don't understand very well. And they are unstable equilibria; cheating kills them. But cooperations is a Nash equilibrium in many repeated games, including PDs. Marriage is just a kind of cooperation.


Gabriel M said...

Don't take this personally but this "policy" proposal, albeit at individual level, is like many other proposals... ex post rationalizations. This is why such a theory would never come from someone unmarried (because they're looking or too young, etc.)

Now on the substantive point... maybe. But just maybe there are or there could be designed better families. How about an open marriage? Or maybe a polyamorous closed household?

I also have a hard time believing that the optimal quantity of cheating is absolute 0. By Inada-like conditions it should be at least small but positive.

Mungowitz said...

Interesting question on optimal cheating.

I would argue there is a biological enforcement mechanism.

Hell hath no fury like a woman scorned. If you cheat on your wife, she will get really, REALLY mad.

Not optimally mad, not rationally mad. But so mad that you will be miserable for a long time.

Ditto if your wife cheats on you. The biologically-conditioned emotional response raises the cost of ex ante, because you know your spouse will go ballistic if you cheat.

No other way to commit to being irrational, unless you can ACTUALLY be irrational.

Hamish said...

While I agree with most of your arguments about the value of co-operative monopoly to achieve your desired goals, the goals are not universal.

Those who eschew marriage are probably less interested in home, household and offspring than you, or find a different solution that is better for them.

Good advocacy is not evidence of a "one right way."