Tuesday, April 15, 2008

Divorce in the Social Welfare Function

A study conducted at the request of a collection of marriage advocate associations found that divorced and out-of-wedlock parents cost $112 billion (about $373 per person) of federal spending. Their intention is for the government to spend more money so that fewer marriages end or that more people who decided they should not marry choose to do so instead. I’m curious about the logic of how divorce affects the social welfare function though, particularly through transactions costs and externalities.

The true motivation of these groups though is the effect of family disbandment on the children. The crux of their argument is that there exists externalities on children if the parents do not take their kin’s suffering into consideration. Divorce is a binary outcome (0/1), thus increasing transactions costs can be welfare improving if the externalities are greater than the transaction costs. The externality component is important, as typically economists think of reducing transactions costs as a means to increasing efficiency and thus social welfare. Thinking carefully about the existence of externalities in this circumstance raises a different point though, as they exist to the extent that parents do not consider their children’s feelings. Thus, if significant negative externalities do exist, wouldn’t those be exactly the types of parents we would want to have less time with their children and be prime candidates for seperation? What if only one of the two parents creates externalities?

1 comment:

Matt E. Ryan said...

Wow, talk about regulation causing more problems. We've got a state run enterprise that generates less than desirable outcomes, and now we want to throw *more* money at it to try and fix the problem? Sweet crispy Christ.

What would a private marriage system generate? There may be some undesirable outcomes here too, in terms of your post, but that's the proper comparison to make-- private marriage vs. public. You wouldn't have a one size fits all marriage structure; you could have unique marriage contracts. Some contracts could be very low commitment, and thus could be very low cost to end. To this end, you could have more divorces...but these divorces could be less costly. Then again, maybe these less costly marriages would last longer since they fit the couple better; in this case, you'd have fewer divorces AND they could be less costly.

You could imagine some traction problems for some areas of government provision if they were to be privatized-- they'd work, but it might take a while for them to work out the kinks (as with any business). I do not think marriage would be one of them. I could see this functioning very well in the very short term.

Also...divorce could be welfare enhancing. You hint at this a bit with the maybe-some-parents-shouldn't-be-around-kids note. It's impossible to determine ex ante (who know what's going to happen?) or ex post (who knows what would have happened?), but if kids end up in a better scenario afterwards, it's not only welfare enhancing but a Pareto optimal move as well (assuming both parents want a divorce).