Wednesday, April 16, 2014

Seto on a Coasean Theory of Marriage

For those interested in a law and econ analysis of marriage, Theodore Seto at Loyola LA has uploaded a paper titled "A Coasean Theory of Marriage."  The abstract reads:  

A theory of the economic aspects of the law of marriage. In The Nature of the Firm (1937), Ronald Coase noted that although contractual exchanges generally maximize social welfare, in complex business environments the transaction costs of contractual relationships may be prohibitively high. Corporate law’s solution is to organize intra-firm transactions on a non-contractual basis. Corporate law is thus a solution to a transaction cost problem. Partners in long-term intimate relationships also engage in significant welfare-enhancing exchanges. Some are long term: "I’ll stay home and take care of the kids; you’ll support me." Some are short term: "I’ll drop off the dry-cleaning; you pick up the kids." Economic theory tells us that such exchanges produce producer and consumer surplus; the ability to engage securely in such exchanges is therefore economically valuable. Contract law might be used to secure the value of such exchanges, but the transaction costs would likely be extremely high. In addition, such exchanges commonly rely on trust; the contracting process itself would tend to undermine trust, making such exchanges less likely regardless of enforceability. The paper’s premise is that the economic part of the law of marriage substitutes non-contractual rules to enforce implicit deals between spouses. Like corporate law, it largely supplants contract law, solves a transaction cost problem, and thereby facilitates significant welfare-enhancing exchanges.

This premise, if correct, has at least four implications. First, it means that marriage, as a legal relationship, is economically valuable. The law of palimony (Marvin v. Marvin) offers distant second-best protections. Second, it means that the economic aspects of the law of marriage should be structured to maximize the legal security of welfare-enhancing exchanges between partners. Third, it means that denying the advantages of marriage to couples based on sexual orientation denies them the benefits of an economically valuable legal regime. In the 2008 Presidential campaign, for example, Sen. John McCain opposed same-sex marriage on ground that same-sex couples could contract into the same position. If my premise is correct, McCain completely missed the point. In Coasian terms, he was in effect saying: "We will not allow gays and lesbians to create business entities. But this does not disadvantage them because they can contract into the same position." Fourth, the paper’s premise provides a principled basis upon which to distinguish between polygamy and same-sex marriage. The implicit deal enforced by the law of marriage assumes a dyadic relationship; it may be completely inapposite to a polygamous unit. For a particular polygamous unit to determine whether the economic aspects of the law of marriage correctly reflect its implicit deal may itself involve high transaction costs. Unlike liberty and dignitary equality justifications for same-sex marriage, therefore, a Coasian justification does not apply equally to polygamous relationships. A Coasian justification may therefore allow courts to require extension of the economic aspects of the law of marriage to same-sex dyads without requiring extension to polygamous units.

http://lawprofessors.typepad.com/gender_law/2014/04/seto-on-a-coasean-theory-of-marriage.html

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