ECN 340 Lecture Notes - Lecture 6: Vacuum Cleaner, Opportunity Cost, The Incentive
23 May 2018
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Lecture 6: Marriage, Family, and Divorce
Marriage, Family, and Divorce
• While a fail oes i uerous ariatios, it is fudaetall a produig uit
(like a firm) – producing the things wanted by the family
o Two people getting together under contract to produce what they want
o Producing children – with more services associated with it, doing dishes, etc.
• Transforms inputs and produces the things wanted by the family members
• Many motives drive the individual to consider establishing a family, some of which may
not be much different than buying a car
o The course is about finding happiness
• We will look at the economic and social importance of the marriage contract, the
diffiult of dissolig the produig uit diore, the ipliatio of love, and the
organizational principles underlying the family structure (what determines the role
individuals have in a marriage)
The Marriage Contract
• Marriage, or the cohabitation, is a legal enforceable contract between two people, of
any sex
o In Ontario, if you leave together for a certain amount of time, their relationship
is considered a marriage and must abide by all the rules that come with it
• Each of the party agrees to abide by certain principles consensually established prior to
the marriage – are established during the dating process
• It is open ended contract; not all eventual possibilities are spelled out
o You a’t possil rite eerthig ithi the otrat. You oe to a geeral
understanding
• Marriage is like a constitution, or by-laws that govern behaviour in a firm – is a
constitution two people have agreed to
• Purpose of dating is to work out provisions of contract. There may be no agreement
• Some believe that love should guide the relationship, but economists hold that the
division of the responsibility mostly due to bargaining of power – how could you raise
your bargaining power? You get a job that pays more and have power over your spouse.
It you stand hours looking good, you have bargaining power
• What if someone cheats on you, but they say they love you? What would be the
economic answer? – Hillary Clinton, Bill had a lot to offer to her. At that point substitute
at the margin
• Poorly put together contact soon leads to dissolution (divorce) – when you decide to live
with someone, you need to figure out who this person is, ask question (where do you
want to live, how many kids do you want to have, religion? And etc. Who has the final
call of decision. IF it is ot like that, it is ot a good idea eause ou do’t hae eough
information. This will not work out and if it does, it will be completely out of luck
o You etter ko hat ou’re gettig ito. Workig out the otrat is iportat
to its basis
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• What are some of the misunderstandings that can occur in a marriage contract?
• What would you include in the contract? Whatever you would like to include, it is
between two people
• What are the obstacles to taking your spouse to court for breach of contract? For
example, suing him (her) for not cutting the grass
o You a’t, plus it is very expensive, and the marriage will fall apart
• Divorce is a dissolution of the contract, just like a break-up of a business
• Investment in a marriage makes it more difficult to break-up
o Each individual has their own intent, if you make a huge investment it makes it
very hard for them to break-up such as a huge family house, children, pets etc.
o The more investment in a marriage makes it more difficult to break it
o If more divorce today, that the cost of it is less today and it all depends on
constraints. People can now easil leae ut ak the the ould’t. People
do’t hage the ostraits hage
• Dissolution may be the result of not investing enough resources (time, energy, and
emotional hassle)
• Living together with the capacity to simply walk out may force the other party to be
more considerate. Why?
o The other person can leave whenever they want, and you are worried, so you
will do whatever you can to keep them
o Togetherness is wonderful, but the forces can lead people apart
• If provisions agreed to are to be carried out, there has to be an enforcement mechanism
(or constraints). What are they? The constraint. The government is the constraint, you
have to pay the other person half
o Your friends, people try to save the marriage
• The courts, friends and others. And the ability to retaliate or shirk responsibilities
o Try to keep marriage together because of how costly divorce is
• Successful marriages have important economic consequences
• Most millionaire households are married couples – which show the importance of long
term investment in the marriage, including a home
o A successful marriage is a long-term relationship of relative economic success
• The forgoing analysis extends to gay and lesbian relationships. Investment ensures more
long-term relationships. Why?
o They invest more, and therefore will stay longer
• Legalizing gay and lesbian relationships will give each partner the incentive to invest in
the union
• The incentive by individual to invest in a marriage has increased since if there is a
divorce, each will get half of all assets
o The other person will get half therefore incentivizes them
• With more investments in the marriage, the more costly the dissolution. What are the
haes of eploitatio uder suh irustaes?
o More, when it is costly to leave, there is more
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
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