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Bulletin of the ERI, 2009/10 no. 1

Contents: November 2009

Love, marriage, and divorce: what's economics got to do with it?

It is true that falling in love, and love more generally, has nothing (directly) to do with economics. The same to a lesser degree concerns marriage. But with regard to divorce, it often is a lot about economics. Here are some observations about the economics of marriage and divorce. But first a short remark about a connection between falling in love and economics. Both are underpinned by the most basic of facts of life, namely, that resources including (good) potential mates are scarce. In such a world, competition can at times be fierce. It has been so from time immemorial, for food, drink and shelter, and indeed for mates. While the market is in today’s world the main mechanism through which competition is mediated, falling in love is nature’s contribution (a Darwinian-type selection method) to this “mediation” of competition for mates.

Turning now to marriage and divorce, we can ask why people marry, and in particular, why they stay married for as many years as they do. The answer has to do with economics and economic reasoning. Put in general terms, marriage must enable couples to create an economic “surplus”, over and above from what can be secured from staying single. Two main reasons for the existence of such a marital surplus are children and household public goods. In the former case, having and then raising children in an intact household (family) can be better, with some exceptions, than doing so outside of marriage. In the latter case, even without children, cooking a meal for two rather than cooking two meals, having a single house for two rather than two houses, and such like, economizes on costs of living and allow people to make efficiency gains.

Of course, there are things that one cannot do in a marriage that one can when single. So marriage generates benefits to the couple, as a couple, but it also imposes costs on the same individuals. A marital surplus exists if the joint payoff (or utility) between two people from being married exceeds the sum of their payoffs from being single.

Given a marital surplus, the couple implicitly if not explicitly need to negotiate the division of such a surplus, and this is often where conflict can arise. Marriage requires cooperation for the surplus to be created, but it includes an aspect of conflict over the allocation of this marital surplus. This is a typical economic phenomenon. As another example, note that in the quintessential economic scenario of a trade situation between a buyer and a seller, each of them would like to trade for mutual benefit, but they have conflicting preferences over the price at which to trade.

When the marital surplus becomes too small or fails to exist (in the eyes of the couple), it means the couple should (rationally) divorce, and obtain instead the benefits from being single. The marital surplus can and does change through time. Reasons for this abound. The most obvious one is when one of the partners wants to start a relationship with someone else, and so in that case his or her payoff from leaving the marriage (his or her so-called outside option) suddenly increases in value to the extent that the marital surplus may become negative. Another example is when children grow and leave the nest, which does not induce a change in any spouse’s outside option but decreases the benefits from staying married.

Two final points to note about a spouse’s outside option, and how it impacts, first, on the share of the marital surplus that he or she can secure and, second, on how government policy might impact on divorce rates. The higher is a person’s outside option payoff, the larger is her or his bargaining power within marriage. This, in turn, allows this person to secure a better deal within marriage (i.e., a greater share of the marital surplus). Of course the outside option payoff should not become too large for otherwise the marital surplus will then fail to exist, prompting divorce proceedings.

Given the observations just made, a government can have an impact on both the distribution of welfare within marriage, and on the divorce rate. For example, through labour market interventions, a government can enhance a woman’s labour market prospects. This would then make her outside option more attractive, enabling her to secure a better deal within marriage. At the same time, governments shouldn’t make that too attractive, for otherwise divorce would take place as the surplus then disappears. Divorce legislation can similarly impact on the size of the marital surplus. The greater the cost of divorce, the greater will be the marital surplus.

There is more to be said about the connection and relevance of economics and economic reasoning to this most fundamental of non-market institutions, the institution of marriage (or, more broadly, to long-term, bilateral relationships). There is a growing literature on the subject in economics starting from the work of the Nobel prize winning economist Gary Becker (see, eg., his classic Treatise on the Family).

Abhinay Muthoo

Abhinay Muthoo is director of the Economic Research Institute and chair of the Department of Economics.