Lowering the cost increases demand

Lowering the cost increases demand
By Father Raymond J. De Souza,
National Post 
Saturday, December 08, 2007

In the fourth-year economics seminar I teach at Queen's University, we cover a range of topics, from globalized trade to the nature of rationality. But one topic seems to attract more interest from the students than others -- economics and marriage. Perhaps it is because the senior students are at an age when they are beginning to think about marriage and family questions themselves, or perhaps because it is a topic in which the real-world applications are easy to see.

For example, applying economic principles to divorce law, one would expect that the lower the exit costs from marriage (no-fault divorce, for example), the lower the "entrance requirement" would be (commitment to the marriage). Therefore, if the law makes it easier to get out, it also makes it correspondingly less important to consider the decision to get in. No great surprise there, as it is a basic economic axiom that if you lower the price of something (divorce) there will be an increase in the demand for it.

It is another set of figures, though, that spark the more intense discussion. For about 10 years now there have been many studies, both in Canada and the United States, which show a link between cohabitation before marriage with greater marital instability. That is, couples who live together before they marry are more likely to divorce than couples who do not. This year our seminar had the benefit of the latest Statistics Canada from the 2006 census, which reported again the same phenomenon.

Some students find this counter-intuitive. Their intuition is that if a couple were to live together first, they would learn more about each other, see each other with both strengths and weaknesses, and therefore be able to make a better decision about marriage. It is like a trial period for a new product, or a probationary period in a new job -- a chance for the parties to see if it is a good match, with a less costly way to break off the agreement if it is not.

So why do the data show the opposite? Perhaps there might be a "selection" issue, namely that cohabiting couples are less committed to

marriage initially than non-cohabiting couples. In that case, when cohabiting couples eventually get around to marrying, their lower level of commitment leads to a higher rate of divorce.

http://www.nationalpost.com/opinion/story.html?id=154734