Lecture 3: Economic Motives for Marriage, Theory of Marriage & Household Decision Making

TOPIC 1: ECONOMIC MOTIVES FOR MARRIAGE

8 Economic Motives for Marriage

1) Specialization & Exchange- focus of this set

2) Scale economies- dual income

3) Public- cooking for 2, sharing interests

4) Externalities- happiness & satisfaction produced from activities of marriage such as feeding kids.

5) Marriage- specific investments

6) Risk Pooling- dual income (protected against unemployment because you still have one income, protected injury).

7) institutional advantages- joined taxation (lower tax rate as couple)

8) love

1-6 are also results of cohabitation and not marriage exclusively

Utility maximization by individual i

Bennefit (Married_i) > Cost (Married_i ) then get married

Why did cohabitation increase with time?

• professional degree attainment

• introduction of contraception

• religious ideal changing social norms

IN 2019 across ethnicity who had the highest and lowest marriage percentages

• highest: asians

• lowestL black individuals

• Difference caused by educational attainment, incarceration, and cultural norms.

TOPIC 2: Gains from Marriage: Specialization and Exchange

Absolute Advantage

Ability to produce a greater quantity of a good, product, or service than peers/competitors using the same amount of resources.

Comparative Advantage

ability to produce a good at a lower opportunity cost than peers/ competitors

Opportunity cost

• value of the next best alternative when one is chosen. forgone production.

• opportunity cost= given up/gained

EX who has the comparative/absaloute advantage at home versus the market

EX: who has the comparative/absolute advantage at home versus the market

Separate and combined production possibility frontiers (Jim & Kathy)

TOPIC 3: Utility & Household Preferences

What is utility and how is it represented

• households maximize their utility (satisfaction) given constraints

• Utility is represented by indifference curves

• The shape of indifference curve is determines by household preferences

• we assume we can aggregate individual preferences into household prefrences.

show an indifference curve that shows preference towards home production versus market production

Household Choice- what 2 things does it depend on

How much tie each member of the household dedicates to home versus market production depends on: 1) comparative advantages 2) preferences for market vs. home goods

Optimum point between PPF and IC

Other placement of indifference curves and what they mean

How do households make decisions (3)

• consensus decision making (neoclassical model)

• Co-operative bargaining (with threat points)

• non-cooperative bargaining

Flaws in neoclassical becker model

THis model abstracts away from many issues such as:

a) how marriages/couples are formed

b) what happens if comparative advantages changes

c) what happens if couples divorce

d) difference by race, ethnicity, and socioeconomic status

SECTION 4: Marriage Market

What is marriage market

who married whom, when, and why?

Changing dynamics in marriage are attributed to:

a) Women have become more educated than men; there are not enough college-educated men for “assortative matching.”

b) comparative advantages have started to equalize for market work (wages, LFP, employment, and occupational opportunity are converging). The more different the comparative advantage is, the more the PPF can be maximized

c) Divorce laws have changed through no-fault divorce (since 1970) and unilateral divorce (explicit consent of both parties in the divorce no longer required).

d) Technology advances (contraception) played a role in declining marriage rates.