2500+ words Essay

Gains from relationships

SESS0042

14th October 2019

Why don’t we go it alone?

 … you don’t have to consider another person’s preferences

 … no dispute about dividing the spoils  … you get to make all decisions  … plus, cloning is available these days

So, why do humans love to pair up?

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Exchange theory  Men and women have something that the

other one wants; they exchange it  The cynical theory: dating market is where

the beauty of women is exchanged for the material resources of men

 Since trade only occurs when it is mutually beneficial (both parties must agree)… …there will obviously be gains from trade

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The crass Exchange theory

The Edgeworth box!

Man’s resources

Woman’s resources

U0

U0

MRS of man’s-for- woman’s resources

U1 > U0

U1 > U0

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Specialization

 Any two people will differ in their skills  Absolute vs comparative advantage:

 Even if one partner sucks at everything, s/ he does not suck at everything equally

 Gain can be had by splitting production along the lines of comparative advantage

 Let us start with linear production fns

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Specialization

HH goods

Market goods

Complete specialization: he has full-time job, she is full-time home- maker

He has part-time job + part-time helps at home, she is full-time homemaker

He has full-time job, she has part- time job and is part-time homemaker

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Non-linear production fns

HH goods

Market goods

MRS (= “relative price”)

of HH vs market goods

Notice:

With non-linear production functions, there never is a complete “separation of spheres” but both partners have clearly moved towards concentrating on what they’re relatively good at.

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Can both benefit for sure?

HH goods

Market goods

Edgeworth’s box:

Can we find a point inside the green box of total marital output such that both partners could be moved onto a higher indifference curve?

The answer is yes.

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The gains depend on…

 …the differences in relative productivities  Specialization may invite NAM

 …the ease of trade in the resulting outputs

 …the technologies of production of HH goods vs the market goods

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Private vs public HH goods

 Private goods = rivalrous consumption  Has to be produced for each person

separately (not necessarily by the consumer him/herself)

 Ex: meals, ironed shirts, washed underwear  Public goods = non-rivalrous consumption

 Produced once, enjoyed by all  Ex: mowed lawn, watered flowers, clean

windows, newly-painted doors, paid rent 10

Private vs public HH goods

Publi c

Private

Hour MP - Public goods

MP - Private goods

1st 10 16 25 22

2nd 9 14 23 20

3rd 8 12 21 18

4th 7 10 19 16

5th 6 8 17 14

•In a single-person HH, public goods get consumed by the one person

•Different people will have different combinations of private/public HH goods

•The mix will depend on their relative productivities in the two spheres

•Total utility is captured by the areas under the curves.

16 hrs of wake time

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Private vs public HH goods

Publi c

Publi c

Private

Private

Hour MP - Public goods

MP - Private goods

1st 10 16 25 22

2nd 9 14 23 20

3rd 8 12 21 18

4th 7 10 19 16

5th 6 8 17 14

Private

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Impact of public goods

 By moving in together  Public-good production as if became more

productive  There clearly must be a scope for improvement

(other MPs have not changed)  Gain in # hours available for private goods

 Empirical prediction: long-distance relationships will have a harder time, ceteris paribus

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Joint production  All the benefits so far could be enjoyed

by room-mates also  Partners complement each other

 In the production of children  When they are perfect complements, zero

production takes place unless both take part  In the consumption of many goods (vacations, dinner parties, sex)

His goods

Her goods

Child isoquan t

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Hers Time His

Joint production

Publi c

Publi c

Private

PrivateJointly prod uced

Net gain relative to situation w/o joint production.

Jointly prod uced

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Benefit from joint production

 Introduces a new good to the mix (not available when single)

 The marginal product of the last hour has clearly increased

 The effect is even stronger if jointly produced goods are also public goods (e.g. children)

 This is where a lot of the PAM comes from  Empirical prediction: long-distance relationships

will have an even harder time, ceteris paribus  Empirical prediction: discouraging (pre-marital)

sex weakens relationships, ceteris paribus

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Insurance as a benefit  Relationship = shared risks  Benefits of diversification:

 In terms of skill set (higher chance that at least one of the couple can do X)

 In terms of material resources (lower chances of BOTH becoming unemployed at the same time)

 In terms of partner’s family (alliances)  The issue of commitment (credible emotional

or legal commitment makes the insurance workable)

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Your man helping you

out

Insurance in relationship

50K

EUundiv

EUdiv

$$$

U

Diversification reduces the overall risk: if the partners are “uncorrelated”, it increases the chance that at least one will be up.

You helping out your man

You down, your man

up

You up, your man

down

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Summary of theory  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

 If it’s so great, why do we form couples instead of triples, quadruples, whole teams?

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A few quick answers

 Some people do form multiples  Children trump everything & they’re

produced in pairs (i.e. “child- technology” favors pairs)

 Diminishing marginal returns  The problem of dividing the spoils

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Incentives vs relationships

 How have the gains changed over the century? (increased, decreased?)

 How has their relative importance changed?

 How responsive is the marriage rate?

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The record of the 20th century Whites, aged 25 - 34, by birth decade

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

1866-75 1876-85 1886-95 1896-1905 1906-15 1916-25 1926-35 1936-45 1946-55 1956-65 1966-75

Never married men Never married women Never in union men Never in union women

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Evidence on the exchange theory

 Hatfield and Clark (1988)  Ask men and women to solicit – cold-turkey

– dates, personal time and sex

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Why the different results?

 Women were more likely to agree to a date than just sex

 Men were more likely to agree to sex than a whole date

 Why?  Men are the demand: low price attracts

demand  Women are the supply: high price raises supply  The price of sex is a date (-ish)

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Specialization

 Big changes on the labor market also  Married women’s LFP has increased  Men’s labor has become less predictable  People live longer after retirement  People study longer before they get a job

 Big changes in HH production  “Engines of liberation” (Greenwood et al.,

2005)

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40.2

32.9

16.7

22.2

14.3

12

34.9

23.5

77.6

76.9

78.7

79.4

22.4

24.2

22

23.8

13.5

22

15.7

19.1

0 24 48 72 96 120 144 168

Married Men

Unmarried Men

Married Women

Unmarried Women

Allocation of Weekly Hours to Various Activities, By Gender and Marital Status

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Labor force participation rate

0

10

20

30

40

50

60

70

80

90

100

1850 1860 1870 1880 1900 1910 1920 1940 1950 1960 1970 1980 1990

%

Total Men Women

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Earnings ratios of full-time workers

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Graphical representation?

Household goods

Market goods

1. Specialization is less necessary (men and women have become more “interchangeable”)

2. Individual LFP becomes less predictable

3. Overall quantity of consumption has gone up

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Household technology

 Increased the productivity of everyone  Also has made men and women more alike

in their productivity  Less specialized knowledge required for any

task  Even then, more household production is

outsourced to market (meals, cleaning etc.)  HH technology also works for the singles

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Specialization – Stock taking

 Men and women have become more alike  In home production  In the labor market  Gains from specialization are weaker

 The HH technologies make one-person HH more manageable  Public goods are easier to produce

 On both counts, the case of relationship is weaker

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Is joint production doing any better?

 Children  Joint free time  Sex

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Joint production – stock taking

 Number of children has gone down  But we devote more resources per

child  Total child-quality has gone up  That means more joint production  Yet, less of it is done jointly, particularly

at the low end of income distribution

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Other joint production

 More free time together means greater stress on common preferences  Importance of PAM on preferences

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46 Source: Buss et al. (2001) “Half a century of mate preference: cultural evolution of values” Journal of Marriage and Family 63

Conclusions  Relationships have always served double

duty:  As economic arrangements  As an environment of companionship

 Changes over 20th century have:  Undermined the economic underpinning

 Specialization and HH public goods are less important  Strengthened the companionship part:

 Compatibility in preferences for joint free time  Compatibility in preferences in parenting/child rearing

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Empirical implications  Stability

 Economic considerations are weaker  Overall stability may have declined

 Length of search  Personal characteristics are more important

 Type and extent of PAM/NAM  On aspects that matter for consumption, child

 Type of relationship  more love, less wealth

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