2500+ words Essay

To wed or not to wed?

SESS 0042

11th November 2019

2

Summary of gains from pairing

 Exchange theory = voluntary trade benefits both

 Specialization = focusing on what each is good at

 Public goods = same thing is “enjoyed twice”  Joint production = two can do what one cannot  Insurance/diversification = back-up plans are

useful

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What does wedding do to people?

 Plenty of stereotypes:  “The woman hopes the man will change

once they marry but he won’t.”  “The man believes the woman will not

change once they marry but she will.”  Why is the bride smiling?  Do men let themselves go?

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What does wedding do to people?

 It does not change the emotional content of the relationship

 It is legally binding  Affects property rights  Requires legal action to get out of

 The commitment is VERY public  Getting out of it is also very public

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Relationship-specific human capital

 Goodwill created inside marriage  Children  Shared memories  Mutual knowledge (of preferences or peeves)  Trust

 Importantly, it’s non-transferable (that’s why it’s called relationship-specific)

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Modeling relationship-specific human capital (rsc)

Assume  Urelationship = U(rsc) with 1st derivative > 0

 RSC is an input in generating Urelationship  Pbreak-up = P(rsc) with 1st derivative < 0

 Shocks happen: unemployment, health, family feuds  rsc helps the couple to withstand them

 U0 = utility after break-up (outside option)  This depends on dating market competition, work

alternatives etc.

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Expected utility

rsc

U0

U

EU

rsc*

U(rsc*)

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Increase in rsc

rsc

U0

U

EU

rsc*

U(rsc*)

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Why does EU increase?

  )()(1)( 0 rscUrscPUrscPEU 

  )()(10 rscU rsc

P

rsc

U rscPU

rsc

P

rsc

EU



 



 



 





    rsc

U rscPUrscU

rsc

P



 



  )(1)( 0

+ + + +

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Production of rsc

 Relationship-specific capital is produced by the two partners  “Relationship is hard work.”  We will assume the production takes time, θ  Assume some simple production function:

rscA qMqF  a

0

0

1

1

 



 







F FM

F

M MF

M

rsc A

rsc

rsc A

rsc

q

a qqa

q

q

a qqa

q

aa

aa

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Production of rsc

 rsc increases in time devoted to building up the relationship

 Both partners need to invest time  The partners’ time are complements  Partners spend time on rsc upto the

moment where the MB=MC=next best alternative use

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  )()(10 rscU rsc

P

rsc

U rscPU

rsc

P

rsc

EU



 



 



 





0

0

1

1

 



 







F FM

F

M MF

M

rsc A

rsc

rsc A

rsc

q

a qqa

q

q

a qqa

q

aa

aa

0 





 





MM

rsc

rsc

EUEU

qq

Combining the derivatives

time, θ

MP(θ)

w

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Enter divorce

 More precisely: the threat of divorce (once they get married)

 Divorce is more difficult than break-up  Higher financial costs  Higher administrative costs  Higher time costs  (could also have higher emotional costs)

 All these costs decrease post-relationship U0

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What threat of divorce does

  )),(()),((1)),(( 0 FMFMFM rscUrscPUrscPEU qqqqqq 

MM

rsc

rsc

EUEU

qq 





 





θM

w*

θ*

    rsc

U rscPUrscU

rsc

P

rsc

EU



 



 



 )(1)( 0

θ**

Making exit more difficult …decreases U0 …which increases (U – U0)

…which increases the derivative

…which shifts the MP of θ

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Impact of threat of costly divorce

 Post-divorce utility is lower ceteris paribus  That strengthens the incentive to avoid that

outcome  Greater investment in the relationship

results  Since the partners’ times are complements,

there is a positive feedback loop  Both invest more and thereby make each

other’s investments more effective

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Expected utility

rsc

U0

U

EU

rsc*

U(rsc*)

rsc**

U0 - c

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Conclusions so far…  With greater investment by both partners,

EU has a potential to increase

 EU could decline, if the decline in U0 was very large and the impact on θ was very weak

 Empirically, however, the prevalence of marriage suggests that there are gains from tying the knot

  )()(1)( 0 rscUrscPUrscPEU 

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Who will be more enthusiastic about marriage?

 If rsc is a public good, then whoever gets greater utility from relationship public goods

 It also depends on MRS between various kinds of relationship goods

 If there is a jointly produced private good, then whoever needs to be compensated

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The case of jointly-produced private good

A partner needs cooperation of the other for production.

Since the good is private, partner gets no direct utility and needs to be compensated.

Easy exit (before marriage) means the compensation is kept low by competition from other potential partners.

After the wedding, exit is harder, so compensation goes up.

θM

θF

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Effects on bargaining

 Sometimes, there is a disagreement between partners whether to get married

 Why, if the pie gets larger?  It must be that relative bargaining

strength also changes:  Whoever would suffer will oppose marriage  The other party will logically prefer marriage

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How marriage affects the split

m

f

Z

Z

45° = equal sharing

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Conclusions - theory

 Wedding is not “just a ceremony”  Incentives for investment in

relationship-specific human capital  The pie gets bigger  Effect on bargaining strength: outside

options change  The case of jointly produced private good

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Empirics

 Are cohabiting couples different from married couples, then?

 If so, why?  Is it due to different relationship

dynamics?  Or are they just different kind of

people, compared to the marrieds?

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25

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Frequently observed patterns

 Fewer children in cohabiting couples  Lower home-ownership rate  Cohabitors have greater financial

independence of each other (both have jobs)  More equal split of household tasks  Relationships of shorter duration  Cohabitors are also younger on average  Cohabitors have different opinion about

importance of marriage

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Brown and Booth (1996)

 1987-88 NSFH  About 2000 couples (married &

cohabiting)  Relationship quality vs type of

relationship  How does that vary with marriage plans

among cohabitors?

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Brown and Booth (1996)

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Hardie & Lucas (2010)

 NLSY 1997 – about 3000 observations  Relationship quality vs relationship

type

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Kahn & Udry (1986)  1970s

National Fertility Study

 About 2000 couples

 Frequency of marital sex

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Call et al. (1995)

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Call et al (1995)

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Household operation

 Different arrangements in terms of money and other aspects  This suggests the relative bargaining

position is different also  Both partners are more likely to “hedge

their bets” in unwed relationships  The difference affects the stability of

the relationship

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B rin

e s a

n d Jo

y n e r

(1 9

9 9

)

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The issue of selection

 What could screw up the results?  People are not randomly assigned to marriage

vs cohabitation  We only have surviving relationships  Many cohabitors end up marrying each other  If cohabitors marry, how do we measure

duration of relationship/marriage?  Upshot: We are not comparing like with like

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Soons & Kalmijn (2009)

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S o o n

s & K

a lm

ijn

(2 0

0 9

)

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Soons & Kalmijn (2009)

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Conclusions

 Married and cohabiting couples are different

 But why they are different is not always clear

 In terms of utility, the difference may not be that large

 In terms of stability, that’s another matter