Economic Analysis of the Family Research Paper

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One of the notable characteristics of economics (over the end of the twentieth and start of the twenty-first century is the extension of economic analysis to subject matter that was not traditionally thought of as economic. Books like Freakonomics (Levitt & Dubner, 2005) demonstrate these new applications of economics, and these books’ popular success indicates that there is a demand for the use of economics to shed light on a variety of social issues. The origins of this extension of economics to the noneconomic in this fashion are often associated with work at the University of Chicago, in particular the work of 1992 Nobel Laureate Gary Becker. Much of Becker’s (1960, 1973, 1974) seminal work in economics was devoted to showing how “the economic way of thinking” could enhance our understanding of a wide variety of social phenomena. One of the first social institutions Becker explored in this fashion was the human family.

In the almost 50 years since that first contribution, the economics of the family has exploded as an area of economic research. A whole variety of family-related phenomena, from how people choose marriage partners to how families make decisions about market versus household production to how household production is divided to how many children couples have to why and how frequently they get divorced to large-scale issues about the evolution of the form and function of the family, have all been subject to economic analysis. This literature has grown substantially in the last few decades, and this entry should be seen as an overture to the much richer work cited in the references.


The economics of the family has explored almost every aspect of what might be termed the life cycle of the family: the time from marriage to divorce or death. In each case, the general strategy is similar in that it makes use of the economic way of thinking to analyze the choices that men and women make about the formation, continuation, and dissolution of families. At its most basic, the economic way of thinking proceeds as follows:

  1. Identify the relevant decision makers and attempt to assess the costs and benefits they face in making the decisions in question, recognizing that both costs and benefits may have a large subjective component to them.
  2. Note that the relevant costs and benefits are on the margin and that costs may be opportunity costs rather than explicit ones.
  3. See whether the empirical data are consistent with predictions that emerge from the specification of the marginal costs and marginal benefits.

With respect to the family, this means that the economist is trying to understand decisions from marriage to childbirth to divorce as being the outcome of marginal benefit versus marginal cost comparisons by the people involved. When economists first started analyzing family issues this way, many objected that it was an attempt to reduce the romance and mystery of marriage and family down to cold calculations, especially financial ones. A further look at how the economics of the family proceeds shows that these concerns are largely misplaced.

The economics of the family simply argues that like all other human decisions, considerations of costs and benefits matter for decisions about the family, and the relevant costs and benefits need not be construed as narrowly financial or pecuniary. It is the focus on the margin and the comparison of costs and benefits that makes it an economic analysis, not any specification of what those costs and benefits might be.

The simple example of choosing to get married illustrates many of these points. First, how do spouses decide that each is the one? Conventionally, one might tell stories of love at first sight, or stars in their eyes, or a sign of some sort. All of those might be part of the decision, but at the very least, the lovers must consider whether someone “better” is out there. After all, rarely do we find perfection in a partner. Why stop looking now and choose this person to marry? From an economic standpoint, we might raise a number of considerations.

The love that spouses have for one another is a significant benefit from deciding to get married. They do get to spend the rest of their lives with one another. There are more material benefits to marriage, or more precisely to household formation. For the purposes of this research paper, we will assume that marriage and household formation happen together, even though in reality the latter sometimes comes first, which is in itself a question in the economics of the family: What are the costs and benefits of living together versus marriage? If the couple marries and moves in together, the spouses benefit from economies of scale (lower average costs of production). For example, if each one has a vacuum cleaner and a washer and dryer, they no longer need two of each. It is also cheaper, per person, to cook for two people, not to mention saving one set of utility payments.

On the cost side, prospective spouses have to consider the down sides of sharing space and resources. One of those costs is imperfect preference satisfaction. When decisions are made jointly, one or both partners frequently do not get exactly what they would like, especially as compared to each making the decision alone. The joint decision about what car to buy is often a good example here, because neither party gets exactly what he or she wants, as the number of people driving minivans they would not have bought on their own suggests. Compromise is a cost of marriage. Marriage is also a long-term legal commitment that is not cheap to end. Finally, there is the opportunity cost question: Could one have done better? Analysts of the economics of marriage have constructed search cost models that attempt to show at what point it no longer makes sense to keep looking for someone better, much like the way in which drivers at some point decide they do not think there will be a cheaper gas station up the street and just take the one at the next corner.

Economics can also be used to analyze changes in the frequency of marriage overall. For example, economists know that marriage rates have fallen over the twentieth century, and they know that people have been getting married later and later in life over the last 50 years. One way of looking at both phenomena is to ask whether the net benefits of marriage have fallen, especially for younger people, in recent decades. Historically, when women’s economic opportunities were fewer and less well paying, the benefits to them from marriage were greater. Being able to share the much higher income of a husband was the key to economic survival for many women, certainly so if they wished to be able to support any children they might have.

Even for men, the benefits of marriage have fallen in modern times. To see why, one needs to examine the concept of household production. One way of conceiving the household that marriage creates is that it has a series of outputs it produces, and the members of that household are the human capital of the production process that leads to that output. The outputs of household production include everything from children and child rearing to cooking and cleaning to managing the household finances. Assuming the household is not completely self-sufficient, it will also require resources from outside the household (what is often termed market production) to be combined with household labor to produce those outputs. As with any other production process, household production involves a division of labor, in this case between the spouses.

Over time, the costs and benefits of marriage have changed. In particular, as women have become more equal participants in the labor market and as less labor has been required for household production, thanks to increased technology and more widely available and reasonably priced market substitutes, the benefits related to the household division of labor have fallen substantially. Women no longer need access to men’s market incomes, and men no longer need someone to manage the household. Because of microwaves, automatic clothes washers and dryers, the much lower cost of dining out or using a dry cleaners, and the widespread use of child care providers, households produce fewer goods and services themselves and require less labor in the process. These changes in the costs and benefits of marriage have in turn led to different choices by men and women. These changes can help explain why one sees later and fewer marriages.

One of the important contributions to the economics of marriage is the idea of assortative mating. If one assumes that individuals are net benefit maximizers and that the marriage market has enough participants (both male and female), theory predicts that we will get assortative mating, which means that people will tend to marry those who bring similar levels of benefits to marriage as they do. Economists use the terms high and low benefits to refer to the human capital of the potential marital partners. High-benefits partners are those who bring high earnings potential, higher education (implying, perhaps, more interesting and desirable consumption preferences), and good health. In general, a high-benefit partner will do better marrying another high-benefit partner than a low-benefit one, unless there is a very unequal distribution of the total benefits of the marriage. Given the competitiveness of the marriage market, that outcome is unlikely. And because high-benefit people are so likely to marry each other, there are few high-benefit people left for low-benefit people to marry; hence, they tend to marry other low-benefit people, resulting in the pattern predicted by assortative mating.

Economic theory can also say something about the decision to have children and how many. Prior to economics examining this question, there were few rigorous examinations of how fertility decisions got made. Once again, the logic of costs and benefits and the margin are central to the analysis. Children clearly provide their parents with benefits, both psychological (or emotional) and economic. Having a child can be a great source of joy to parents. Children also have value as economic assets, particularly as a source of support for parents in their old age. Children can also provide labor for market or household production. All of these benefits must be weighed against the costs. Obviously, children must be fed, clothed, and educated, each of which requires explicit monetary costs from the parents. Children also demand much of the parents’ time, reducing the time they have for market production, other forms of household production, or leisure. Having children is a loss of freedom for the parents, because their choices now must take into account the effects on the child. Finally, there are economies of scale in child production. The average cost of raising a child declines with each successive child, because the marginal costs of additional children are declining. It clearly does not require twice as much labor to raise two children as it does one, and things like clothes and toys can often be passed down to the younger child.

Even choices about raising children can be understood using economics. If parents wish to discourage problematic behavior in children, thinking in terms of incentives, costs, and benefits can be very effective. Take the case of children who forget to bring their lunches to school. The parents can simply bring the children’s lunches whenever this happens. Soon, the children will recognize that they can impose the costs of their own mistakes on the parents with the parents’ cooperation, which dramatically reduces children’s incentive to remember to bring their lunches. The parents, in this case, would like to find a way not to bear the costs of the children’s decision. Specifically, one might wish to strive for situations where the parents are indifferent to the children’s decision to remember or forget their lunches. The simplest way to do that is to refuse to bring the lunches. If the children remember them, great. If the children forget, the parents bear no cost; the children will survive a day without lunch and will learn that remembering is their responsibility and that they will pay the costs of not remembering. In essence, the parents have used responsibility as a proxy for the role played by property rights in economic analyses. By delineating what is whose, property rights set up spheres of responsibility, and parental assignments of responsibility do as well. As long as parents are willing to stick to those assignments, they can prevent children from imposing costs on them and creating the inefficiencies that go with those costs (Wittman, 2005).

One of the most famous economic explanations of parent-child relationships is Gary Becker’s (1991) Rotten Kid Theorem. He argues that if parents are altruistic and wish to help their children, those children will act in ways that maximize family income. Put differently, we might expect that a child whose parents want to help him or her would choose to shirk obligations to the whole family and attempt to live off the parents’ generosity. Becker’s analysis suggests that this expectation is wrong. The child’s degree of selfishness turns out not to matter, because even the most self-interested child will still take into account the effect of his or her actions on the rest of the family, effectively internalizing all possible externalities. As Becker points out, this theorem can be applied beyond the parent-child relationship to a variety of interactions within the family. He also notes that this does not mean that families will be without conflict. All the theorem predicts is that all have an interest in maximizing total family income. How that income is distributed among beneficiaries can still be the source of much conflict.

The economics of divorce is in many ways the mirror image of the economics of marriage. When the benefits to marriage fall, ceteris paribus, the opportunity cost of divorce falls and one sees more divorces; when the benefits to marriage rise, one should see fewer divorces. If couples gain less from the specialization that the household division of labor involves, then the incentive to stay married in the face of any sort of dissatisfaction with the marriage—especially of a psychological or emotional nature—is that much less. The legal environment matters a great deal here as well, because there are significant transaction costs to a divorce (much more so than a marriage). If the law makes divorce costly and difficult, one should see fewer divorces, even if couples are unhappy. To the extent the law reduces the transaction costs associated with divorce, divorce rates will rise, all else equal. As some have noted, these legal rules are not completely external to the economics of marriage. If the economic benefits to marriage were falling, one would expect that the margin of unhappiness that would produce a possible divorce would be lower as well (i.e., people will put up with less unhappiness if they are not getting other benefits from the marriage). In turn, this would produce a greater demand for divorces, which might well pressure political and legal institutions to reduce the transaction costs of divorce. A complete economics of the family has to account for the possible endogeneity of the institutional framework within which individuals decide.

Applications and Empirical Evidence

Understanding some of the basic theory behind the economics of the family can help economists make sense of a great deal of history and current economic and demographic data. The evolution of the Western family over the last several hundred years illustrates a number of the core economic principles discussed in the prior section. The transition from agriculture to industry is particularly instructive.

Several features of the family in the era of agriculture are worth noting. First, marriage was predominantly based on economic considerations rather than emotional ones. Marriage was necessary for survival, so finding a good mate was much more akin to finding a good work partner than anything else. Love, as we understand it today, was much more the province of the very, very few who did not have to worry about day-to-day survival. Second, the household was run by the husband. In this world, there was no real distinction between market and household production, because even crops that were sold on the market were produced by the household. Although women still disproportionately labored at what one today would call household production, they, along with children, were also expected to help with the crops or the cattle. And all of this was under the direction and supervision of the man. Third, children were viewed as economic assets. They were needed to contribute to production. This explains why families in the past (and families in agricultural areas today) tended to be larger. With falling marginal costs of children and potentially rising marginal benefits for the first several children, having a family of five, six, or seven made much more economic sense.

Industrialization changed the costs and benefits facing a number of family-related decisions and thereby changed the way families look and function. The crucial change was that the development of factories meant the physical separation of market and household production as men went out to work to earn an income, eventually leaving women at home in charge there. This heightened the division of labor within the family, which reached its peak in the late-nineteenth-century concept of men’s and women’s separate spheres. By ending the economic partnership component of marriage, industrialization was also a catalyst for the development and spread of love-based marriages. Finally, industrialization led to higher wages, which eventually allowed children and women to get out of the factories and into the homes, once their incomes were not necessary for survival and comfort. One result of this development was that children progressively lost their roles as economic assets and acquired new costs, because they could now devote time to education rather than production. This shift in the relative costs of children led to the (still ongoing) reduction in the size of the family and the related development of increasingly reliable birth control technology. Many of the features we associate with the modern Western family are products of the transition from agriculture to industrialization and the way in which it altered the costs and benefits facing parents. Economic theory is extremely useful in elucidating the process by which that evolution occurred.

As noted briefly earlier, one of the notable demographic trends of the last 40 or 50 years has been the decline in the marriage rate and the rise in the median age of first marriage. Between 1950 and 2000, the percentage of women aged 20 to 24 who were never married jumped from 32.3% to 72.8%, with the male numbers being 59.0% and 83.7%. For those aged 25 to 29, one sees a tripling of the percentage of women never married (38.9% in 2000) and a more than doubling of the male percentage (51.7% in 2000). The rates for those aged 30 to 34 also more than doubled in that 50-year period. The median age of first marriage for men rose from 23.0 to 26.9 and for women from 20.3 to 25.1 over roughly the same 50-year period. The overall marriage rate fell from 10.7% to 8.2%, and consistent with what theory would predict, birthrates over that period fell by 50% (Jacobsen, 2007).

Economic theory offers several possible explanations for the changes in the marriage rate, all of which emerge from the basic insight that marginal benefits and costs matter when people make marriage decisions. Women’s greater productivity in the market has reduced the differences in comparative advantages between men and women, thereby reducing the benefits from the elements of specialization and exchange that characterize marriage. As men’s and women’s human capital look increasingly similar, the benefits of marriage fall while the costs remain roughly the same. This tendency may be somewhat offset by elements of assortative mating in that as men’s and women’s human capital converge, their tastes and the opportunity cost of their time converges as well, which might lead to more complementary consumption preferences, which would in turn increase the benefits of marriage. As marriage has evolved from narrowly economic to more about emotional and psychological factors, concerns about complementarities in production have gradually been replaced by concerns about complementarities in consumption. Signals about what one reads, watches, listens to, or eats are becoming far more relevant to the marital decision than what one does for a living or one’s preferences about household or market production.

Men’s incomes relative to women have fallen, and this is another potential factor. Men may delay marriage until they have levels of income that are, in their minds, sufficient in comparison to that of potential mates, perhaps because they wish to ensure a certain level of power in the household. A smaller income gap between men and women would mean it might take more time for men to get to that threshold, thereby leading to later first dates of marriage by men.

Two longer run social changes are of relevance here as well. Aside from the decline in the direct benefits of marriage, family formation may offer fewer benefits than in the past because more and more of the social functions that were once met by the family are now met outside of it. Other social institutions have, over time, taken on more of the economic, educational, religious, and social functions of the family, leaving the family with the core developmental and socialization functions (though market substitutes such as paid child care exist here too). These changes mean that families are less important to achieving important social goals, reducing the benefits of marriage. At the same time, substitutes for marriage are less costly than they used to be since social disapproval of nonmarital cohabitation has almost disappeared, allowing couples (including same-sex ones) to get many of the remaining benefits of household formation and family outside legal marriage.

Countertrends for each of these explanations have also been identified in the literature, because respecification of the relevant costs and benefits can produce different predictions. For example, the reduction in the social functions of the family might make marriage more attractive to women who wish to pursue a career, do not want to engage in much household production, and would prefer having a committed companion to share valuable leisure time. As with other areas in economics, the economics of the family continues to explore which costs and benefits seem to be the most powerful in explaining observed outcomes.

The decline in birthrates also reflects powerful economic factors. The shift from agriculture to industry and the corresponding shift of children from being net producers to being net consumers are clearly borne out in the data. At the same time, the development of more reliable contraception, most likely an endogenous response to children becoming increasingly a net cost to parents, and changes in women’s expectations about their own participation in market production have contributed to the fall in birthrates. In addition, reductions in infant and child mortality have made it possible for parents to have a given number of children survive to adulthood with fewer pregnancies and births. The decline in the birthrate may reflect not just a desire for fewer children but an increase in the efficiency of the cycle from pregnancy to adulthood. In addition, children were for many years a source of support for adults in their old age. With higher levels of wealth, parents are more able to save for their own old age, particularly through organized retirement plans, both public and private. This also reduces the benefits of having children.

Models of child production decisions often treat the decision as one about child-based consumption. That is, parents wish to produce a certain combination of the number of children they have and the investment in each of those children that delivers a multiplied total of child-based consumption. The investment can take the form of either parental time or market-acquired goods and services. In these models, the growth in parental wages over the last several decades has both income and substitution effects on child-based consumption. Rising income will lead parents to want more of it. However, rising wages imply rising opportunity costs of having children, which will reduce the amount of child-based consumption being sought because parents substitute less-time-intensive forms of consumption than those involving children. However, the increase in wages can also lead to families substituting market goods and services for their own time in the production of child-based consumption (e.g., hiring a nanny, providing children more toys to keep them entertained after school, or even sending older children to a boarding school). It might also be cheaper as wages rise to increase parents’ child-based consumption by investing more resources in a small number of children rather than having more children, even given the economies of scale in child production.

The empirical evidence on the size of some of these effects varies. Empirical studies in the United States and Europe indicate that a 10% increase in women’s wages will produce anywhere from an 8% to a 17% decline in births, depending on the wealth of the region being studied, while a 10% increase in men’s wages would increase births by anywhere from 10% to 13% (Winegarden, 1984). The negative elasticity associated with women’s wages reflects the substitution effects of women’s time, while the positive elasticity of men’s wages reflects the pure income effect that a higher male wage has for his wife. Even with correlation data such as these, causality remains controversial: Do women have fewer children because they are working more, or are they working more because they are having fewer children? Economists do not have a very good understanding of how long-run changes in the economy affect social choices, and standard econometric studies can show only correlation, not causation.

An additional application of the basic economic theory of the family regards the division of labor within the household. The standard model argues that the spouse with the lowest opportunity cost of his or her time as measured by their market wage should specialize in household production, while the other should specialize in market production. The model assumed that differences in wages between men and women were large enough that they mattered for such purposes. The model would also predict that as male-female wage differentials disappeared, one should see a more even distribution of work in the household. As women’s wages rise, one should see men taking on a more equal share of household production.

Empirically, we have seen convergence in the time men and women spend on household production, but not to the same degree as the convergence in wages. That is, women still do a disproportionate (to the opportunity cost of their time) amount of the household production. Recent empirical work shows that men and women with roughly the same human capital and the same demographic features (e.g., age and marital status) working in the same job will earn close to the same wage. However, married men and women still do significantly different, though less so than in the past, amounts of housework. In 1965, the average for married men with a child aged 5 or over was 5.3 hours of housework per week, while women averaged 30.3 hours. By 2004, the men in that group averaged 9.5 hours per week, while the women fell to 16.9 hours. In relative terms, women went from doing almost six times the housework to almost twice as much. There is no question that the economic model can explain a good deal of this, but the disparity by gender remains, with women putting in 7.4 more hours per week, despite the fact that the wage differential is nowhere the 2:1 ratio.

It is also worth noting that the total amount of time spent on housework fell from 35.6 hours per week to 26.4 hours (all data as reported in Jacobsen, 2007, p. 111). That overall reduction is due to a combination of better household technology and cheaper market substitutes, as well as lower standards of cleanliness.

Even if one takes away the children at home, the men do only 0.7 hours more per week, and the women do 1 hour less, leaving a differential of 5.7 hours. The explanation for the difference cannot be the presence of children alone. A complete explanation for the remaining difference will likely focus on factors giving the male more bargaining power in the discussion over the division of housework, perhaps deriving from the higher cost of exiting the relationship for women, particularly when there are children involved. Economists have used a variety of bargaining models to explore both marital choice and the division of household labor (e.g., Lundberg & Pollack, 1993).

The economics of divorce provides yet another application of the basic model. Divorce rates in the United States are notably higher today than 40 years ago, despite a slow downward trend since about 1980. After a long-run slow increase since the early twentieth century, interrupted by a spike at the end of World War II and a leveling off for the 20 years afterward, the divorce rate more than doubled in the period between the mid-1960s and the early 1980s. Two of the most straightforward explanations of the long-run increase are the increased ability of women to survive economically outside of a marriage, discussed earlier, and the reduction in the birthrate. Both of these reduce the marginal cost of divorce. The first does so by reducing the financial burden on women and the second by reducing the number of marriages with any children, or with minor children, at a given time. Married couples with minor children are more likely to try to stick it out in a bad marriage, so anything that reduces the number of such children lowers the cost of divorce, inducing more divorce.

The large jump from the mid-1960s until the early 1980s and the relatively high plateau maintained since then require additional explanations. The mid-1960s date is not accidental, because it reflects the beginning of the loosening of divorce law across the country. In particular, the advent of no-fault divorce is often credited as a key factor in the rising divorce rate of that period. This change in divorce law allowed couples to divorce without having to prove adultery, abuse, or abandonment by the spouse. They could simply decide they did not wish to be married anymore. In most states, by the late 1970s, the unilateral desire by one partner to leave the marriage was sufficient to get a divorce. The controversy in the literature is the degree to which no-fault was a cause or consequence of a rising desire for divorce. Certainly, by lowering the cost of divorce, no-fault made divorce more likely, but others argue that it was a shift in the demand for divorce that led to the changes in the law. In fact, the divorce rate does seem to start its climb before no-fault had really spread to most states, lending credence to the idea that it was the intensification of the longer-run factors noted previously that pushed states to liberalize their divorce laws. Once liberalized, however, the lowered cost induced a movement along the demand-for-divorce curve, causing another jump.

A second explanation for that increase and sustained plateau is that there are expectation-matching and signaling problems as men and women adjust to new norms (Allen, 1998). Couples who married under the mutual assumption of a more strict division of labor by gender may well have found themselves 15 years later in a world where the wife was working, leading to tensions in the mar-riage because the reality did not match their expectations. The jump in divorces that quickly followed the advent of no-fault suggests that there were latent divorces waiting to happen, and these might have been one type. The signaling problems reflect the uncertainty that has come with changing social norms and gender roles. By the 1970s, couples were less likely to expect a strict division of labor, but men in particular may have had a difficult time in determining whether a prospective spouse was likely to want a career or to stay home. Rather than a flat-out wrong expectation, the signals about what expectation to have became increasingly noisier, making it more likely that mistakes would be made. Even for women, determining whether a potential husband would be accepting of their deciding later on to take up a career became more difficult in the new environment. This would likely generate more bad matches that would reveal themselves down the road, which is consistent with the ongoing high divorce rate.

This signaling theory should also predict a decline in the divorce rate, at least on the margin, as social norms become more predictable. Recent divorce data suggest this might be happening. The divorce rate has been very slowly falling, and when it is looked at from a cohort perspective, we find that divorce rates among those married just a few years have fallen more notably. A decade ago, couples married just 5 to 10 years were more likely to get divorced than couples today married that long. An explanation for this is that couples are making better matches today because they are facing less-noisy signals in the marriage market. Men and women have more similar life goals and are more tolerant of the need to bend their own goals to those of spouses. Even as the marriage rate continues to fall, the most recent evidence suggests that those marriages that are happening are more likely to stay together than in years past (U.S. Census Bureau, 2007).

Policy Implications

The economics of the family can inform an analysis of various policy proposals. In this section, three such issues are examined using the approaches outlined in previous sections.

One of the more fascinating questions worth exploring is how policy choices can affect women’s labor force participation decisions. As an example, consider the way in which the U.S. tax system treats secondary earners. The typical economic model of the family assumes that labor force decisions are made sequentially—that is, the higher-earning spouse is assumed to work in the market, and given that person’s decision, the family decides whether the lower-earning spouse should also work in the market and how much. More often than not, the secondary earner is the woman. Tax policy enters into the picture because married couples are almost always better off filing jointly than using the IRS’s married, filing separately category, even given the discussion to follow. Filing jointly means that the secondary earner’s first dollar of income is taxed at the marginal rate applicable to the primary earner’s last dollar. So rather than paying lower rates on portions of the secondary earner’s income, the couple filing jointly sees a much larger portion of all secondary income taxed. When that effect is combined with the law’s refusal to treat child-care payments as an expense of employment, the incentives for the secondary earner in a family with small children are such that the disposable income from the secondary earner’s work is actually quite low. Some analysts (McCaffery, 1999) have suggested that if married couples could file truly separately (as distinct from married, filing separately, under current law), with each one’s income being taxed separately, this problem would be substantially lessened.

Analyzing the policy of no-fault divorce is another area in which the economics of the family can contribute. Historically, a spouse had to show abuse, abandonment, or adultery in order to get a divorce. For couples who were just unhappy, this often meant having to lie to have the grounds necessary for divorce, and it placed one spouse in the position of being at fault for the divorce. From an economic perspective, this process involved rather high transaction costs for unhappy couples. In the late 1960s and early 1970s, more states moved to so-called no-fault divorce, by which one or the other spouse could terminate the marriage for whatever reason he or she desired. This policy is probably more accurately called unilateral divorce, because the divorce does not require the consent of both parties. One advantage of so-called fault-based divorce is that couples who were unhappy at the very least had to cooperate in a lie to get a divorce. The need to cooperate in a lie meant that the divorce could take place only if both parties were willing to take affirmative steps to give up on the marriage. This may well have made for fewer adversarial divorces and greater ease in dividing up assets because both parties thought they would be better off separated. Today, the decision is unilateral in most states and therefore does not require any cooperation of this sort.

The problem with no-fault is that unilateral divorce puts the weaker party, usually the woman, at the mercy of the stronger. Imagine the wife who has given up her own career to help her husband’s, to raise children, or both. If he decides he wants a divorce, she has very little leverage to prevent him or to negotiate reasonable terms (Cohen, 1987). Prior to no-fault, she could at least hold out on cooperating to convince a judge that there were sufficient grounds. Or if one imagines a divorce regime where mutual consent replaces unilateral desire or abuse, abandonment, or adultery as the grounds for divorce, the financially weaker party gains significant bargaining power.

This can perhaps best be seen by using the Coase Theorem, one implication of which is that if transaction costs are sufficiently low, any situation involving external costs can be renegotiated to make the harmed party whole. What a mutual consent divorce regime would do is force couples into a negotiation process that would ensure that the weaker party is able to make a credible claim to compensation for the breaking of the marital contract. This effect of such a policy is a clear benefit. However, this shift would come with costs as well. One of the advantages of unilateral divorce is that it makes it very easy for a harmed party to exit the marriage. Imagine a situation where a wife was deeply unhappy but not abused, nor was there any adultery. Under unilateral no-fault, she could file for divorce and get out. If she were in fact being abused, she would not need to demonstrate to a judge that abuse was present. By raising the costs of divorce, going to a regime of mutual consent does make it harder for the victimized spouse to lose out economically, but it also makes it harder to get out of a bad marriage in the first place. An economic analysis of the family can help policy makers think through the trade-off here and try to find a set of policies that would make it easier for victimized spouses to exit bad marriages but to do so in ways that do not leave them substantially worse off.

The economic approach to child production also sheds light on policies designed to reduce birthrates in parts of the world where the population is thought to be growing too quickly. In the past, policy makers often focused on improving education and access to birth control—for example, by distributing condoms in third world countries. The assumptions were that population was, in fact, too high and that parents wanted smaller families but simply did not know how to make that happen or lacked the resources to do so. The economic approach suggests that all of these assumptions may be faulty. It may well be the case that parents in the third world are having the number of children they actually desire to have, given the circumstances in which they find themselves. The marginal benefits of additional children often do outweigh the costs in poorer societies for reasons this research paper has already touched on. At the very least, the economic approach to child production leads analysts to ask a different set of questions about this situation. Many have noted that freely distributed condoms often do not get used for their intended purpose and end up being used for other things. The economics of the family can explain that by asking whether the reason for large families in these societies is not ignorance or lack of resources but a reasonably rational calculation of the benefits and costs of child production. That population growth rates in the developed world are different might just reflect a difference in those costs and benefits, rather than education or access to resources per se.

These are but a few examples of how economic analyses of the family can inform policy discussions. Too often, family decision making is understood as standing outside the province of rationality and the kind of marginal benefit and marginal cost thinking of economics. Ignoring the economic approach to the family can lead to bad policy decisions if families are, in fact, making decisions along the lines that economics suggests.

Future Directions

The social institution of the family has changed enormously over the last 50 years, which is roughly the same length of time it has been a serious object of study for economists. There is little doubt that the change will continue in the years to come. Economists will likely be kept very busy trying to understand the continued evolution of gender relationships and the household division of labor, particularly as communications technology appears to be making it increasingly possible to work from home. Analyzing child production and raising decisions in a world where genetic choice might be possible and where the cost of raising kids continues to climb will provide another set of challenges. The same can be said of the developing world as globalization brings economic pressures on family forms and gender roles there. Finally, as same-sex marriage remains on the policy agenda, and as more same-sex couples create households and raise children, economists may find interesting research questions there because such households face the same decisions as opposite-sex ones have over the years.


Exploring the social institution of the family through the eyes of economics not only demonstrates the variety of phenomena that can be examined using the economic way of thinking, it also provides a different and valuable perspective on how families function and the choices that individuals make within them. Economics brings into relief the constraints under which family members choose and the various marginal benefits and marginal costs that might inform their decision making. Seeing the family in this light can help us make sense of some of the major demographic changes of the last few generations as well as inform policy makers as to the likely consequences, both intended and unintended, of various family policy proposals. Like all other social institutions, the family exists to reduce transaction costs and to solve human coordination problems. Economics helps us identify exactly how families do so and thereby informs our attempts to improve them.

See also:


  1. Allen, D. W. (1998). No-fault divorce in Canada: Its cause and effect. Journal of Economic Behavior and Organizations, 37, 129-149.
  2. Becker, G. S. (1960). An economic analysis of fertility. In Universities-National Bureau (Ed.), Demographic and economic change in developed countries (pp. 209-231). Princeton, NJ: Princeton University Press.
  3. Becker, G. S. (1973). A theory of marriage: Part 1. Journal of Political Economy, 81, 813-846.
  4. Becker, G. S. (1974). A theory of marriage: Part 2. Journal of Political Economy, 82, S11-S26.
  5. Becker, G. S. (1991). A treatise on the family (Enl. ed.). Cambridge, MA: Harvard University Press.
  6. Becker, G. S., & Lewis, H. G. (1973). On the interaction between the quantity and quality of children. Journal of Political Economy, 81, S279-S288.
  7. Cohen, L. (1987). Marriage, divorce, and quasi rents: Or, “I gave him the best years of my life.” Journal of Legal Studies, 16, 267-303.
  8. Coontz, S. (2005). Marriage, a history: From obedience to intimacy or how love conquered marriage. New York: Viking.
  9. Grossbard-Shechtman, S. (1993). On the economics of marriage: A theory of marriage, labor and divorce. Boulder, CO: Westview Press.
  10. Hadfield, G. (1999). A coordination model of the sexual division of labor. Journal of Economic Behavior and Organization, 40, 125-153.
  11. Jacobsen, J. P. (2007). The economics of gender (3rd ed.).
  12. Malden, MA: Blackwell. Levitt, S. D., & Dubner, S. J. (2005). Freakonomics. New York: HarperCollins.
  13. Lundberg, S., & Pollack, R. (1993). Separate spheres bargaining and the marriage market. Journal of Political Economy, 101, 988-1010.
  14. McCaffery, E. J. (1999). Taxing women. Chicago: University of Chicago Press. Parkman, A. (2000). Good intentions gone awry. Lanham, MD:
  15. Rowman & Littlefield. Posner, R. A. (1992). Sex and reason. Cambridge, MA: Harvard University Press.
  16. Robinson, J. P., & Godbey, G. (1997). Time for life: The surprising ways Americans use their time. University Park: Pennsylvania State University Press.
  17. Rosenzweig, M. R., & Schultz, T. P. (1985). The demand for and supply of births: Fertility and its life cycle consequences. American Economic Review, 75, 992-1015.
  18. Rosenzweig, M. R., & Stark, O. (Eds.). (1997). Handbook of population and family economics. Amsterdam: Elsevier.
  19. Shorter, E. (1975). The making of the modern family. New York: Basic Books.
  20. S. Census Bureau. (2007). Survey of income and program participation (SIPP), 2004 panel, wave 2 topical module. Retrieved February 2, 2009, from population/socdemo/marital-hist/2004/Table2.2004.xls
  21. Winegarden, C. R. (1984). Women’s fertility, market work, and marital status: A test of the new household economics with international data. Economica, 51, 447-456.
  22. Wittman, D. (2005). The internal organization of the family: Economic analysis and psychological advice. Kyklos, 58, 121-144.

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