Marriage, investment, and sunk costs

By Matt Nolan 15/10/2013

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 ;)