Marriage, investment, and sunk costs

At the moment, many of my friends are getting married.  At the same time some of my other friends who are not married are telling me they don’t understand why people get married.

While I am not married, I think the idea of marriage is grand.  I think it is a great way of dealing with a social issue that involves both search and relationship specific investment!

Now, you may think I’m being too romantic here by bringing up terms like “relationship specific investment” – but let us not forget the awesome power of economics for dealing with these ideas.  The question is, given marriage as an institution what specific type of co-ordination failure did marriage turn up to solve?

As individuals we all have an idea about the qualities we are attracted to in a partner – that or we at least get the feeling that we are attracted to certain things.  This is all well and good.  However, when we are out looking around we know that there is currently some set of people available to have a relationship with, and someone in that set embodies a set of qualities that differs from our ideal in some way.

Over time this set changes (of qualities, and the pool of qualities available), and there are direct costs from “searching” for additional people in the population to increase this set of potential partners.  Have a quick peak at search theory and matching theory in Wikipedia.

Now this sounds absolutely awful.  But it would be more than a mistake to stop our view there – after all, what is the point of marriage in this example?

Here our view could get even worse.  When we decide to “stop searching”, marriage creates a contractual relationship that makes it costly to leave!  Is marriage really about trying to restrict the other persons ability to leave in the case where their set of available partners has changed, by increasing the cost of doing so?

Why are you being so mean!

Wait a second here, remember I’m a fan of the concept of marriage.  So I must think that the above description is not telling us the whole story!

Yes marriage makes it more costly for someone to leave a relationship, but it is a cost both partners are willing to take on for a specific reason – relationship specific investment.

A relationship is not some big ball of matching characteristics.  It is also the result of the investment of time and resources by the individuals involved into the relationship.  Now, investing in a relationship will create gains for both parties – but only if both parties stay in the relationship.   When it is more costly for one of the partners to leave it is less likely they will leave, as a result the expected benefit of investing in relationship specific capital is higher!

To quote the literature:

Marriage acts as a commitment device that fosters cooperation and/or induces partners to make relationship-specific investments

And there is a lovely corollary to this.  By investing in relationship specific capital, capital that is sunk outside of the relationship, you can make a relationship into “the best available to you” at a point in time – as although someone else may embody better characteristics, they would require costly investment in relationship specific capital to get them up to the level of satisfaction you currently enjoy.

We’ve discussed these things before (here, here, and here and in the comments), but it cannot hurt to reiterate how romantic economists really are ;)

  • Shamubeel Eaqub

    You know, I didnt do this when I popped the question to my now-wife. It was very much a social/cultural device to declare commitment to the relationship.

    • http://tvhe.co.nz/ Matt Nolan

      I mean’t to note at the end of this post:

      “I have ignored the signalling and consumption explanations for marriage. That is just my bias, I’m a sucker for a beautiful story of overcoming insufficient relationship specific investment”

      But then the website crashed …

      I also meant to mention sunk costs at some point, but the website crashed before I was finished but after I had told it to auto-post. This may teach me to actually hold off setting up the auto-post until the post itself is finished …

  • http://offsettingbehaviour.blogspot.com/ Eric Crampton

    Read Adshade’s Dollars & Sex. Great stuff.

    I spend a week in my “Current policy issues” class on Sex, Love and Economics….

    • http://tvhe.co.nz/ Matt Nolan

      I’ll have to give that a go at some point – never heard of it!

      • http://offsettingbehaviour.blogspot.com/ Eric Crampton

        Adshade’s proposed marriage vows:

        “I, [name of groom], agree to enter into a contract with you, [name of bride], that will govern the terms of our marriage. I accept that while I have met other women whose qualities were such that they surpassed my minimum requirements for a bride, the fact that they found me lacking has led me to choose you, my love, as my wife. What you lack in terms of education and
        income, you more than compensate for with your youthfulness and attractive appearance, and I vow that this trade-off is sufficient for me to choose you as my bride. I promise to be faithful, even though the low cost of searching and your inevitable declining value might one day encourage me to seek a new wife.

        I vow to work with you toward the common goal of exploiting the division of
        labour in the production of household goods so that our household will prosper.

        I will continue to invest in my human capital to ensure that your future
        expectations of our household income are met. While it may not be rational, I pledge to invest in our children and my asset portfolio as if I expected us to be together until death do we part.”

        “I, [name of bride], agree to enter into a contract with you, [name of groom], that will govern the terms of our marriage. I accept that while I have met other men whose qualities were such that they surpassed my
        minimum requirements for a groom, the fact that they found me lacking has led me to choose you, my love, as my husband. What you lack in stature and attractiveness, you more than compensate for with your level of education and occupational choice, and I vow that this trade-off is sufficient for me to choose you as my husband.

        I promise that any children born into our marriage will be biologically your own, even as I know that I will be tempted to seek short-term relationships with men who possess a better genetic endowment. I will sacrifice my own human capital for that of our children, in the knowledge that you will bring in sufficient resources for our family to ensure our well-being.

        While it may not be rational, I will quell my inclination to behave in a risk-averse manner and pledge to invest in our marriage and my asset
        portfolio as if I expected us to be together until death do we part.”

  • Rebecca Stevenson

    or adopt a “do the time” inert approach under the Relationship Property Act and get the financial benefits of marriage without the associated costs of a wedding

  • Seamus Hogan

    A few years ago I proposed an Honours microtheory research paper along these lines. The motivation was a TV news item on speed dating, about a woman who had managed to start many relationships as a result of speed-dating encounters, but none lasted. My hypothesis was than in a model with the possibility of relationship-specific investment, a new technology that increased the speed of finding new matches, would lower the cost of ending a current match, and so remove the incentive to invest in relationship-specific capital, thus reducing the average quality of matches to everyone’s detriment. Sadly, no student took up that project. I will have to try again next year.

    • http://www.tvhe.co.nz/ jamesz

      There was a good article about this phenomenon on dating websites: people struggle to commit because it’s too easy to find new matches. Five minutes of googling has failed to turn it up, sadly.

  • http://seo-mumbai.co.in/social-media.html sanjay sharma

    Greatepoint is noted. Need to understand basic things in life. Every person need to partner for life. So Anybaddy taking care of it. But some peoples are point of view is very different. So they faces many problems