The visible hand in economics

Marital Economics

Posted on: August 17, 2007

The Economist Blog pointed out the following blog article. In this article Michael Munger points out how a marriage is like a firm, in the way that it internalizes all the transaction costs associated with purchasing ‘relationship’ goods (this is an application of the Coase theory of the firm). Although the Economist Blog agrees with this underlying way of looking at a relationship the two authors disagree on whether a two person relationship is optimal.

The Economist does have a point in that, a relationship with three or four people could hypothetically work, hell they do occur in real life. The way to analyse whether it would work is to look at the margin. Ultimately, the relationship should be willing to accept one more person if the marginal benefit of getting them in-house is greater than the marginal cost. In most monogamous relationships, the benefits of having another partner (Partnership, sex, love) are less than the costs associated with that partner (Putting up with another person all day, cost for deviating from social norms, costs of co-ordination 😉 ), as a result it is often optimal to stay in a two-person relationship.

Ultimately the optimal size of the firm/marriage depends on the preferences of the individuals involved, and the market of available suitors. Isn’t it beautiful to hear economists talk about love 😉 .

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