Sample - C - Marriage in an Economic Standpoint

Sample - C - Marriage in an Economic Standpoint - pm Saying...

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Unformatted text preview: pm Saying “I Do” in an Economic Universe Chernomorskaya 1 l . Introduction Over the last century, divorce has come from being an exceptional occurrence to being exceptionally common. The legal trend has evolved to mirror this change. in the 1887 decision of Piper v. Hoard, the focus of the law on the “business principles” of marriage is evident. In fact, in his concluding remarks about this case, Judge Peckham notes that while marriage has both “its sentimental and business sides,” the courts” attention is solely on the latter (Cohen p. 270). This attitude reflects the contractual view of marriage with which the legal system approaches divorce cases. However, whereas in the past the courts’ approach has been dogmatic, today’s attitude has become much more sympathetic to the sentimental side Peckharn mentions. The courts now favor protecting the individual rights of the parties in a marriage agreement over protecting the contract itself (Cohen p. 270—1). This attitude change is referred to as the “Divorce Revolution” of the United States, the climax of which came in the 1970’s and early l989’s when most states changed their divorce legislation (Mechoulan p. 2). The new laws emphasized the individual rights of each party by allowing for noufault divorce: a divorce allowing one spouse to divorce unilaterally without any marital wrongdoing involved (Mechoulan p. 3). Ira Ellman and Sharon Lohr’s description of divorce law in 1950 allows us to gauge the extent of the changes: “divorce by mutual consent, much less unilateral divorce, was not accepted in any state. . . Spouses were supposed to maintain an adversarial posture on the question of whether a marital offence had been committed. Their failure to do so would itself {be} a basis for denying the divorce” (Ellman and Lohr p. 343). This revolution also facilitated a change in the legal approach to divorce settlements; collectively referred to as property settlements and agreements (PSAS), they include alimony, child custody, child support, taxation, insurance, pension division, visitation schedules, etc. Chernomorskaya 2 (Allen p. 6231) Along with the no—fault divorce doctrine, came the removal of fault consideration in PSA cases. These sweeping changes prompted an ongoing debate about the efficacy of no—fault divorce as compared to other alternatives in divorce legislation. Because of the dual sentimentai and business nature of the agreement, it has proven difficult to structure the marriage arrangement and the regimes governing divorce in such a way as to optimally benefit both parties. This paper will explore the various perspectives that the academic world has taken on the issue, first by defining marriage in contractual terms and then by focusing on some of the problems that academians identify as inherent to the legal institution of marriage ~ characteristics which may encourage the opportunistic behavior of breaching the contract. Further, it will explore the different existing options in evaluating cases of breach (divorce) and the respective arguments of their support and opposition. Finally, the discussion wiil turn to the author’s personal conclusions about the economic approach to the arrangement of marriage and the evaluation of divorce. 2. The Contractual Perspective on Marriage 2.1. Why People Marry In contrast to commercial contracts which result in purely instrumental gains, marriage provides two identifiable types of gains: instrumental and, what I shall term, “spiritual” gains (Cohen p. 269-270). The spiritual gains are consistent with the sentimental side that Judge Peckham identified in the 19th century. Specifically, the symbolic joining of two into one unit is of psychological and/or religious value to the parties and each stands to benefit directiy from the entrance into such a contract. Similarly, the willingness to marry is indicative of one’s deep love Chernomorskaya 3 for the other and such evidence may be viewed as a “spiritual.” gain to each of the parties (Cohen p. 269—270). However, in approaching marriage from the economic point of view, it is important not to overlook the instrumental gains resultant from marriage. This consideration allows us to suspend our sentimental notions of marriage in order to clearly envision it as a contract. The marrying parties stand to benefit from two primary instrumental gains: the ability to invest in assets peculiar to the reiationship and the diminution in the risky behavior of having to search for a suitable mate (Cohen p. 269—270). Marriage allows for investment in assets of peculiar value to the relationship of the parties. Peculiar assets call for specific investments on the part of each party and it is the naturai desire of each party to protect the value of his/her own investment. Thus, each party would desire a long-term contract as a source of the desired protection (Cohen p. 269). The most significant of such investments is the bearing and raising of children. Professor Lloyd Cohen cites two kinds of losses that occur if a relationship in the presence of children were to end: first, each. party wiii have “significant costs to bear in a situation in which the associational value of the children will be diminished” and, second, “children will impose costs without commensurate benefits on a new romantic partner of either parent” (Cohen p. 270). Thus, to insure against such potentiai Iosses, the parties stand to benefit from entering into the long~terrn contract of marriage. By doing so, the parties create an ideal. situation in which to invest in peculiar assets like children. Additionally, marriage is instrumentain attractive to the risk—averse by allowing them to accept the possibiiity that their companion may decline in value in exchange for the security of not having to further engage in the search for a suitable rnate (Cohen p. 271). Similarly, their _ Chernomorsiraya 4 companion reciprocates with a similar acquiescence. The marriage contract thus provides both parties with the instrumental gain of the mutual sacrifices they make. __._ Thus, people marry because of the combined benefits of “spiritual” and instrumental gains. By this logic, a situation in which the benefits derived through the long—term commitment of marriage outweigh the opportunity costs of having to stay with. one’s partner indefinitely will result in the parties choosing to marry (Cohen p. 271). If, however, the opposite is the case with the gains being lower than the losses of missed opportunities, a long—term marriage contract will not be entered into. 2.2 The Peculiar Nature of a Marriage Contract Professor Cohen compares a marriage contract to an employment contract, claiming that like the relationship between employer and employee, the relationship between spouses would prove inefficient if the plethora of duties each party must carry out were attempted to be defined with precision (p. 272). Thus, the fact that no explicit agreement specifying the duties and rights of each party exists makes the idea of marriage as a contract somewhat elusive. indeed, certain characteristics of the marriage contract differ substantially from all other types of contracts. Admitting these differences, the courts stated the following in Bishop v. Britian Investment Co: “[W]hile we speak of marriage as a civil contract, yet that is a narrow View of it. The consensus of opinion in civilized nations is that marriage is something more than a dry contract. it is a contract difi‘erent from all others. For instance: Only a court can dissolve it. it may not be rescinded at will like other contracts, only one such can exist at a time. . ..lt marks a line between the morals of the barnyard and the morals of civilized men. In time, it rises to the dignity of a status in which society morals, religion reason, and the state itself, have a live and large interest." [229 Mo. 699, 129 SW. 668 (1910)} Nonetheless, in marriage, the parties essentially contract to exchange a lifetime supply of spousal services (Cohen p. 272). A breach of contract in such a case results in the loss of this provision. Chernomorskaya 5 In evaluating the possibility of contractual breach in divorce cases, the courts consider the degree of performance in determining substantial performance. The courts deem the value of this loss a first approximation of damages afforded to the nonubreachingparty (Dynes and 11thcm; 33. 43). Cohen identifies the precise value of the losses suffered by the divorced party as being the cost of finding a suitable replacement of equivalent value to one’s former spouse (p. 273). Four components affecting the costs of finding such a replacement are: transactions costs, changes in one’s value due to chance occurrences such as injury, predictable changesl‘resulting in the investment in the aforementioned peculiar assets, and predictable changes in one’s value as a result of time (Cohen p. 2’73). The contractual nature of marriage is also discernable in the similarities between marital breakdown and the breakdown of long—term commercial contracts. Like commercial contracts in the long run, marriages face problems such as incentive alignment, disproportionate utility functions and failing personal relations (Dynes and Rowthorn p. 4) Thus, the difficulties that the courts face in evaluating breach in commercial contracts are the same difficulties they face in creating an efficient law of marital breach, or divorce. In addition, problems innate to the structure of the marriage market have been identified by researchers as leaving women much worse off than men post-breach. This inequality in the relative losses of divorcing husband and Wife poses further difficulties that the legal system must face in fashioning a law of divorce that will lead to optimal efficiency. 3. Quasi-Rents and the Disadvantaged, Divorced Woman 3.1. The Value of a Woman A popular hypothesis among economic and legal scholars of the issues of marriage and divorce is that, in the early years of a marriage, the female/Wife carries a relatively higher value Chernomorskaya 6 in comparison to the male/husband. Secondly, it is believed that the rate at which this value depreciates is much more rapid than that of a man (Dnes and Rowthorn p. 19—23). Cohen and his contemporaries speak of a wife and a husband as capital assets offering a set of services and characteristics such as childwbearing ability, beauty, femininity, and fertility and masculinity, respectively (Cohen p. 278). These, like all capital assets, depreciate overtime; however, the argument goes that the depreciation rate of the asset of the woman is much higher than that of a man. It is difficult to prove that a woman depreciates in value faster than a man, but Cohen’s examination of remarriage demographics prompts Further inquiry. Statistically, while at age 20, the sex ratio of unmarried females to males is less than one, at age 55, this ratio more than doubles. These figures are indicative, Cohen argues, of the increasing difficulty women face in attempting to remarry at a time at which their value has greatly depreciated (p. 281). This is so because women lose their fertility as early as 35 —— much earlier than do men, who can sire children well into their 605. 3.2. Quasi—Rents in Marriage This difference in depreciation rates creates a situation of what are economically referred to as quasi~rents in a marriage; the payment of these rents is set up in such a way as to encourage opportunistic behavior on the part of the male/hush and. In a marriage, it occurs that the male will accrue quasi-rent “payments” in the early stages while the woman will benefit in the long term. Thus, this set up allows the husband the opportunity to benefit early and then to opportunistically divorce as to escape his duty to “pay” (Cohen p. 287-288). A quasi~rent is “a payment or revenue received over opportunity cost” (Glossary of Research Economics). This idea is common in commercial contracts and it follows that it be Chernornorskaya 7 applicable to the realm of marriage, as it, too, is a form of contract. Quasi-rents in marriage are closely linked with the gains that marriage has to offer. Quasi—rents are found in the form of the benefit that partaking in a marriage contract offers (a “spiritual” gain). Also, the investment in peculiar assets (an instrumental gain) such as children is likely to yield quasi-rents (Cohen p. 288). In both these cases, however, the two parties simultaneously receive the quasi-rent payment. However, there exists another case of quasi-rents, which is consistent with the instrumental gain of comfort/in surance in. marriage, that motivates the abovementioned opportunistic behavior. Due to the proposed changes in the value of a woman relative to that of her husband that time causes, the woman earns quasi~rents as her vaiue declines quicker (Cohen p. 288). In other words, what she “gives up” by remaining in the marital union decreases in value over time, thus her husband’s “payments” to her exceed the wife’s opportunity costs. Thus, women earn quasi-rents later in the marriage than do men. How may this motivate opportunistic behavior on the part of the male? As a marriage progresses into the longnterrn, the husband, who has continuousiy earned his quasi-rents in the contract, is now expected to pay quasi-rents to his wife. If, however, he chooses to breach the marital contract at this time by breaching, he stands to benefit from not having to make these 93 “payments. This is called the capture of rent; in commercial contracts, an uncompensated breach results in the breaching party capturing the other’s rents. Indeed, Judge Neely, whom Cohen rightly quotes, admits that in a marriage, “a man. . . is capable of starting out again with a minimum of either aiimony or child support liability” (Cohen p. 288). The opportunistic behavior of capturing quasi—rents substantially decreases the wellbeing of the female in a case of divorce. In addition, extra costs are imposed on the woman if the divorcing couple has children. Because in the majority of divorce cases, children continue to Chernomorskaya 8 live with their mothers (85%), the female faces the costs of having to reenter the marriage market with children (US Census Bureau 1998). Two specific costs are identifiable: a) the restriction that children place on having to “advertise” oneself in the marriage market (having to make oneself both “visible and attainable” and b) children are considered a liability by most prospective husbands, limiting potential Wives in their ability to effectively provide their respective services (Cohen p. 283). It is clear that the special circumstances of marriage, like the chronological arrangements of quasi-rent payments, place the female party to a marital contract in a disadvantaged position. This position leaves the woman vulnerable to the expropriation of her quasi-rents by an opportunistic husband, making the woman incur the losses of an unfulfilled contractual agreement which are consistent with the cost of having to find a suitable replacement. In cases with children, these costs are often exacerbated by the extra restrictions that are imposed by having invested in such a peculiar asset within a contractual framework that ultimately results in breach. The relative disadvantage of the woman in cases of divorce poses questions as to how to formulate a doctrine of divorce that would ensure optimal efficiency and provide for the highest possible utility for both parties. 4. Wanted: Efficient Law of Divorce There exist four prevalent options for a doctrine of divorce: (1) mutual consent divorce (2) indissoiuble marriage, (3) judge-determined divorce and (4) today’s choice of no-fault or unilateral divorce. Each seems to pose new obstacles to overcome and further difficulties to resolve, without addressing the problems already inherent to the marriage contract. However, their evaluation prompts further inquiry, which will hopefully lead to an efficient solution (if one is possible) f Chemomorskaya 9 4.1 Mutual Consent Divorce Mutual consent divorce requires performance of the marital contract unless a “release” is granted by the party not wishing to breach. Thus, in such an arrangement, the agreement of both spouses about the failure of a marriage and the genuine desire of both for it to end will. be sufficient to warrant its dissolution (Parkman p. 65). This option is analogous to the doctrine of specific performance in commercial contracts, which obliges the breaching party to purchase a “release” (Parkman p. 64). Essentially, mutual consent divorce encourages a sort of Coasian transaction. Supporters of this particular option, like Professor Allen Parkman, argue that such a provision protects spouses against expropriation of their investments in the marriage (against the capture of quasi—rents) by deterring opportunistic desertion and forcing a departing spouse to pay just compensation (p. 66). However, the idea of “just compensation” is questionable as it is impossible to tell how reasonable the party opposing divorce would be in Coasian negotiations. Secondly, a perverse incentive is created by such a doctrine. Because the courts are incapable of forcing one to carry out one’s marital duties in the proper spirit of love and devotion, the imposition of a mutual consent requirement may prompt the party desiring breach to act in such a negative way as to inspire consent from the other (Posner p. 150). This sort of behavior may be said to lead to a “destruction” of quasi-rents (Cohen p. 289). It follows that while the mutual consent divorce may eliminate the potential expropriation of one’s quasi-rents by an opportunistic partner, it may create other perverse incentives that will inevitably lead to an inefficient breach of the marital contract. Chernornorskaya 10 4.2. Indissoluble marriage Asits name implies, indissoluble marriage is a contract that may not be breached under any circumstances; once it has been entered into, the parties are bound to it and may be forced to “make the best of a bad situation.” Yet this possibility is precisely one of this provision’s strengths, scholars argue. Such an arrangement creates the extreme incentive for each potential partner to exercise great care and caution in choosing a spouse (Cohen p. 302). Quasi-rent expropriation is impossible in the case of indissoluble marriage, stripping one of the ability to “capture” one’s partner’s rents and providing no incentive to “destroy” them. Finally, supporters of this doctrine claim. that this is the most efficient option for divorce legislation as it prohibits breach, which, as the discussion shows, is likely to be inefficient. Accordingly, opposing scholars cite the scenario of inefficient marriage and the fact that, in such cases, the indissoluble marriage doctrine would lead to misallocation of resources (Cohen p. 302). Also, in response to the claim that indissoluble marriage will prompt the parties to cooperate towards the common goals of stability and happiness (Scott p. 48), opponents of this option raise the possibility of a phenomenon known as “breach without divorce.” This situation would cause the parties to inefficiently pursue social lives independent of one another while remaining legally married (Cohen p. 302). 4.3. Judge—determined Divorce A provision such as this would call for the decision of the court as to whether or not a divorce should be granted. In such a case, determination of the breaching party and the appraisal of expropriated quasi-rents would be necessary of the court in order to ensure efficiency. However, it is generally agreed by scholars that this is an unrealistic option as the duty of having ‘ Chernornorskaya l l to make these determinations would be costly and unrealizable due to the subjective nature of the matter at hand (Cohen p. 204). 4.4. Unilateral Divorce The three different divorce doctrines of mutual consent divorce, indissoluble divorce, and judge—determined divorce have proven weak in safeguarding marital contracts from situations of inefficient breach. In some instances, While the risk of inefficient breach can be eliminated by the policies, other notable problems arise. These difficulties may account for the current legal trend of rejecting the use of these options. In light of these preferences, the question arises as to whether today’s legal divorce doctrinew the product of the so-called American “Divorce Revolution” of the 19703 and early ‘805 — manages to both eliminate the obstacles that the previously explored doctrines create and effectively safeguard against occurrences such as quasi- rent capture and/or destruction. Today, the American legal system subscribes to the notion of unilateral or no«fault divorce; as defined earlier, Such a provision allows one party to divorce another unilaterally, Without necessary mutual consent and/or proof of marital wrongdoing. This arrangement is the family-law equivalent of the contract at will (Cohen p. 299). In the context of commercial contracts, a contract at Will is utilized when the risk of opportunistic behavior is very Iowand when “each side knows that his ability to withhold of his own future performance is adequate security for obtaining the performance from the other side” (Cohen p. 299). When applied to the case of marriage, the categorization. of the marital contract as a “specia ” species of contract becomes evident. These expectations are unreasonable for parties such as spouses to have, and from the previous discussion of the susceptibility of the woman to the expropriation of her quash Chernornorskaya 12 rents, we can conclude that the risk of opportunistic behavior is substantially higher than “very low.” In fact, Cohen states that the use of such a doctrine is appropriate for contracts in the short-term, implying that the use of the provision with regard to marriage and divorce may hinder the realization of a marital union as a long-term investment (Cohen p. 299). Echoing this notion, in her article “Marital Commitment and the Legal Regulation of Divorce,” Professor Elizabeth Scott argues that family law reforms since the 19605 increased the freedom of individuals to leave a marriage, but in doing so they have restricted the freedom of individuals to bind themselves so as to achieve the long~term goals they desire (Scott p. 4446). The opposition is strengthened by the assertion that a unilateral divorce doctrine provides them no incentives to search diligently for a spouse (Parkman p. 63). Thus, it seems that despite the benefits resultant from its increased emphasis on the rights of the individual, the no—fault divorce rule does little to alleviate the spectrum of problems associated with the dissolution of marriage contracts. 5. Economic Myopia and the Weaknesses of its Contractual Interpretation of Marriage The failure of each doctrine to provide an effective method with which to evaluate divorce prompts us to question Whether the desired provision is at all possible and if not, then why. Perhaps the approach to marriage from the economic standpoint has made us (and scholars alike) myopic in considering solely its “business side,” and, in effect, blind to any other option. It may be that an alternative which doesn’t adhere as strictly to economic concepts of efiiciency will prove better at resolving issues of divorce and possibly more effective in making both. parties better oft. Chernomorskaya 13 l A fundamental problem of the economic approach to marriage contracts is the plethora of generalizations being made in order to construct a plausible, analyza‘ole model. In the academic writing on the subject, it is common to find phrases like: “as a general rule” or “it ispossible” in reference to an assumption being made about party behavior and/or some factor being fixed. The assumptions, while understandable, create too shaky of a foundation for the economic model being developed to be effective. For example, in statistically analyzing remarriage demographics, Cohen concludes that the value of a woman must necessarily decrease faster than that of a man because by age 55 there remain a greater number of older females in the marriage market than older males. Yet from the data, it cannot be determined whether men’s preference for younger women or more mature women’s preferences for older men, a more thorough search, and/or remaining unmarried is being reflected (Cohen p. 280). Not enough facts and too many guesses on the part of each theoretician produce unreliable representations based on subjective understandings of the institution of marriage. Additionally, the individual economic models developed in scholarly works seem to ignore concepts too important to be overlooked simply because there is an inability to simulate/account for them. Specifically, these are the psychological aspects to a marriage, which not only affect spousal behavior but also impose additional costs/benefits onto the parties that are neglected by theoreticians. This is observable in the claim that the value of one’s loss due to marital breach is the cost of having to find a replacement. Obviously, there is a psychological/emotional component unaccounted for (one of broken promises and shattered dreams) in such reasoning, and it seems insufficient to simply write such factors off because they are difficult to incorporate into a model. The economist’s obstinate focus misses crucial factors that must be considered in relation to marriage and divorce. Chernornorskaya 14 As a function of its specific focus, the economic perspective of marriage introduces some obvioust perverse notions that are difficult to accept. We’ve already come across the idea of mistreating a spouse in Order to gain their consent to divorce. The economic approach yields several such warped ideas. Another example, also discernable in the discussion of the mutual consent divorce doctrine, is the suggestion of a Coasian transaction to achieve efficient breach. This concept implies that in order to achieve efficiency, the party desiring divorce would choose to “pay-oft" his spouse to consent as long as the “price” was less than or equal to the perceived benefit of divorce. Although the form in which the payment wouid take place is not specified (the payment may take the form of concessions in PSAS), the mere impiication of a monetary payment warrants inquiry into the appropriateness of the economic approach. Another red flag that the perspective raises is in its discussion of chiidren. The economist regards the presence of children as a liability outside of a marital union. While the notion may make economic sense, in discounting the gains and benefits that children bring into a parent’s life, it fails to make common sense. Finally, certain contemporary phenomena stand unaccounted for by the economic logic employed. On November 18, 2003, same-sex marriage was recognized in the state of Massachusetts. In light of these developments, one wonders what the economic motivation behind this decision and the same-sex partners’ decision to marry is. The contractuai perspective of marriage identifies the primary motivation as being the protection of the parties” investment into peculiar assets — most importantly, children. Yet, in a same-sex case, children are not an option, so why then do partners choose to enter into a long~terrn contract? The economic perspective faiis to explain this choice, further exposing its limitations. I Chemomorskaya 15 It is obvious that the failure of the economic approach lies in its inability to incorporate psychological and moral components into modeling people’s behavior. Without due consideration given to these factors, it is unlikely that the economist’s persoective will ever make a proper recommendation as to which divorce doctrine would serve the public best. Chernomorskaya 16 Works Cited 229 Mo. 699, 129 sw. 668 (1910). Allen, Doug W. 1992. “Marriage and Divorce: Comment,” 82 American Economic Review 679~85. Cohen, Lloyd. 1987. “Marriage, Divorce, and Quasi Rents; or, ‘I Gave Him the Best Years of My Life’,’ ’ XV I Journal of Lego! Studies 267-303. Dnes, Anthony and Robert Rowthorn. 2002, The Law and Economics of Marriage and Divorce. Cambridge University Press. (Articles Used by Anthony Docs and Robert Rowthorn, Elizabeth S. Scott, Allen Parkman) Ellman, Ira M. and Sharon L. Lohr. 1998. “Dissolvng the Relationship Between Divorce Laws and Divorce Rates,” 18 International Review ofLaw and Ecbnomics 18 34169. Glossary of Research Economics. “Quasi-rents,” Accessed through the Internet. November 17, 2003. Grail, Timothy. 2000. “More Custodial Parents Receive Full Amount of Child Support, Census Bureau Reports,” Press Release of the United States Census Bureau. Mechouian, Stéphane. 2002. “No-Fault Divorce & Economics: What have we Learned from the U. 82,” Working paper. University of Toronto. Posner, Richard A, Economic Analysis of Law 7 (1972). ...
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This note was uploaded on 12/11/2007 for the course ECON 4040 taught by Professor Hay during the Fall '07 term at Cornell University (Engineering School).

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Sample - C - Marriage in an Economic Standpoint - pm Saying...

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