Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, March 08, 2005

More on the Marriage Contract

When a marriage contract ends in divorce, the economic basis for compensation in the form of spousal support raises interesting questions, presented very well at Division of Labor. The discussion is about Moore v. Moore, an Ohio case in which a divorced spouse had a sex-change operation.

The Moores divorced after 25 years of marriage. Mr. Moore was ordered to pay his ex-wife spousal support that would terminate if she remarried or cohabitated with another male. After the divorce, the ex-Mrs. Moore had a sex change operation and began cohabitating with a female. ...

This case certainty makes us rethink the basis for spousal support. Is it to correct gender inequities in our society or is it to reinforce investment in a marriage contract? If the purpose is to correct gender inequities then we certainly can argue that since he is no longer a she that spousal support should end? However, if the purpose of spousal support is the repayment of investment in a contract that was broken by the other partner, then gender or switching gender should be irrelevant. It also should be irrelevant whether the party receiving the support has remarried or is cohabitating, since the lost past investment is the same regardless of future living arrangements. The payments should also be independent of the ex-wife’s financial circumstance; otherwise, they create a disincentive for future investment in human capital.
Another reason for spousal support might be insurance of the form, "If we divorce, your lifestyle won't suffer too much." The problems with this basis for support (which is clearly one of the reasons for the initial divorce agreement in this case, halting payments should the spouse begin living with a different partner) are that (1) it raises a moral hazard issue because (2) it creates a serious negative tax on re-partnering.

Thanks to JC for the pointer. For more on the economics of marriage, see here for Phil's take on game theory and marriage. And if you're big on game theory, see this.
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