Risk averse

Contract theory includes a principle known as “information asymmetry” in which one party entering the contract has access to information the other party does not and uses this information to gain an unfair advantage.  High levels of information asymmetry eventually lead to market failure and economic collapse since individuals realize that they cannot make a bargain in good faith.  Typically, in a lawful society, the government steps in to prevent this through regulation of the dissemination of information regarding contracts.  Hence, there are consumer protections (lemon laws concerning automobiles, for example) and legal sanctions (criminal charges for insider trading) to prevent unscrupulous actors from using information asymmetry to defraud others and in so doing eventually crash the entire system. 

The current state of marriage law in the United States, however, is one area where this well understood and established economic theory is not rationally exercised.  The various states recognize that marriage is a contract, yet through the wonders of “no fault” divorce laws information asymmetry is not only allowed to occur, it is actually encouraged. 

Suppose a man and a woman enter into a marriage contract.  Now suppose that the woman in question decides she no longer wishes to honor the contract.  Not much of a leap, is it?  But wait a minute… Didn’t she swear this contract was “until death do us part”?  If she decides otherwise, or for that matter even uses the threat of divorce inside the marriage, what you have is an example of information asymmetry.  Party A, the husband, entered into the contract with a full expectation that barring a narrow set of circumstances (infidelity, perhaps) the contract was binding.  In point of fact, he almost certainly received both verbal and written confirmation in front of a number of witnesses attesting this to be the fact by Party B, the wife.  Yet Party B, the wife, actually had no intent of honoring these terms.  This is a classic example of information asymmetry.  One party signed the contract agreeing to a set of terms, while the other party signed on knowing full well the terms would never be honored.

One might point out that this does not apply simply to divorce.  Party A may have signed on expecting that Party B would share the marital bed in a conjugal fashion, whereas party B has determined that such will not be the case.  There are other examples as well, such as finances, employment, child rearing, etc.  The fact of the matter is that Party B may enter into the contract stating any number of things which she well knows to be untrue. 

Unique to our contract law, however, is that Party B not only will not be punished for the use of asymmetrical information, she will be rewarded.  This is well established legal doctrine in U.S. divorce courts.  But what is the end result of this type of action?

As divorce rates have risen, we see that there has been a corresponding decrease in marriage rates.  Men simply are not willing to get married.  The reason is completely predictable under the economic theory in question here.  Men are becoming more and more risk averse because the risk to reward ration is so violently skewed against them under the current system.  Their rewards for marriage are becoming more limited.  Sex may be withheld (and often is) by wives who are displeased with them for any reason, whereas since the sexual revolution took place single men may seek out any number of sexual partners without the stigma once attached.  A man who marries must do so knowing that he puts his career, earnings, savings, property and retirement at great risk the moment he says “I do”. 

The result is a system crash.  Young men opt out of marriage because it contains enormous perceived risk and little perceived benefit.  This is entirely the fault of a “no fault” divorce system that actively encourages and rewards behavior which would be criminal in any other type of contract.  The only way that the current trend of young men avoiding marriage can be reversed is by reversing the current cost benefit analysis they are working under, and that will require a complete change in our nation’s divorce laws.  In other words, don’t hold your breath waiting for it to happen. 


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