Introduction
The idea of thinking of families in economic terms is not new, but dates back at least to the time of Aristotle, whose Econameia meant ‘management of the household’ (Spiegel, 1983, p.
25), and whose views on affection between the generations are cited even today by law and economics scholars such as Richard Posner (Posner, 1996). The patriarchal family was used as a metaphor for the monarchy by William Filmer in the seventeenth century (Filmer, 1653), a theory debunked by John Locke, who, in writing his Second Treatise on Government (Locke, 1689, pp. 179-87), laid out much of the foundation for the later work of William Blackstone, a lawyer, whose contractarian notion of the implicit contract between parent and child appears in much of the law and economics literature on family relationships (Blackstone, 1765). Similarly, David Hume’s (1761) writing about the need for marital exclusivity, particularly on the part of the wife, sounds an economic chord, for he bases his suggestion on the requirement of the husband to support the wife’s offspring. Another contractual writing about the family comes from Sir Matthew Hale, a British jurist whose statement about the impossibility of spousal rape stemmed from the wife’s having, by her marriage, given an irrevocable consent to intercourse with her husband. The nineteenth-century economic writings of British and American authors Harriet Martineau (1889) and Catharine Beecher (1841) relate women’s participation in the home economy to their political and social roles. Beecher’s A Treatise on Domestic Economy (1841) became the primer for the adoption of the married woman’s ‘separate sphere’, in which she was to specialize in the education and upbringing of children while her husband toiled in the labour market.In the twentieth century, family law suffered from an intellectual stigma that probably came from the tawdriness of the staged suits for fault divorce and the equally unsavoury ‘heartbalm actions’ of breach of promise, seduction and alienation of affections.
Except for the forays of some members of the Chicago school in the late 1970s, writing about a market in babies (Landes and Posner, 1978) and the economic basis for alimony (Landes, 1978), family law lagged behind other legal fields in developing economic scholarship. Recently, however, quite a few pieces and several books have featured the law and economics of the family, particularly involving marriage and divorce.Family law is perhaps different from other areas because of its tremendous social importance and the ever-presence of externalities, in the form of children. Although there has been very little work published that systematically looks at all of family law (Brinig, 2000), one might begin with a theoretical construction such as that shown in Table 7.1.
Table 7.1 A systematic representation of family law
| Forms | Children not present | Children present | ||
| Social unit | Legal analysis | Economic | ||
| Individuals | Contract | Consumer | Courtship and | Fertility and |
| paradigm | economics | marriage creation | adoption | |
| Economics | Husband and wife | Parent and | ||
| of the firm | child | |||
| Families | Covenant | Law and | Divorcing couples | Emancipation |
| paradigm | economics | Divorcing | ||
| of franchise | couples with children Adoptive and birth families | |||
A complete study of the law and economics of the family could thus be organized along three well-known economic models.
Some family relationships, which might be called ‘pre-families’, can be described using a consumer economics model. When this model sets the appropriate theoretical framework, law and economics scholars suggest that unregulated, or private, contracts ought to be encouraged, unless one or both of the contracting parties is incompetent, conditions suggest information asymmetries, the situation involves substantial negative externalities or rent extraction (or hold-up) is likely to take place (Epstein, 1995). In these exceptional circumstances, the most efficient contracting cannot take place. Therefore circumstances require some type of governmental intervention in the marketplace.This analysis indicates a free marriage market except where there are substantial information problems (annulment) or substantial negative externalities (void marriages or unenforceable agreements, both of which occur because the social benefits of families are threatened (Brinig and Alexeev, 1995). A contract will be closely scrutinized when it frequently leads to rent extraction (as with antenuptial agreements, where courts are particularly concerned with inequality of bargaining power: Schultz, 1980). Before children become part of a family, externalities are always present because any contracts are made between adults, while at the same time they affect the children. Moreover, the state has interests because of the importance of parenting. Much of the litigation involves problems of information (about what a birth parent is giving up, or what an adoptive parent is receiving) and market power (wealth extraction by third parties: Brinig, 1995a). Some involves the costs of transacting adoptions. Other externalities (commodification) are particularly feminist concerns, as are problems with the ‘pricing’ or sale of children (Radin, 1987), because of incommensurability (inability to value or measure: Sunstein, 1994).
Once the family has been formed, the relationships may be analogized to the economic problem faced by the firm.
The closest legal relationship will not be contract, but covenant (Brinig, 1994a, 2000). The goal of a firm’s profit parallels the individual’s utility. The factors of production critically involve transaction costs as well as the costs of externalities. The principalagent problem poses the greatest transaction cost difficulties for the firm (Ross, 1973). The modern firm particularly requires investments in capital. In the family, profit is seen by mainstream economists as a maximization of household production (Becker, 1991). More recently, feminist economists challenge the appropriateness (and accuracy) of that goal and suggest alternatives of happiness, intimacy and security (Singer, 1995). Becker’s household production model fails to take account of all things involving the family, and particularly ignores what makes up people’s tastes or preferences. The household production function may be re-examined, with particular attention paid to transaction costs and also to the specialization and the division of labour.The family firm can also be examined in the context of children. A prominent subject for economic analysis and, recently, law and economic analysis, involves investment in human capital, the knowledge and skills that will build future citizens, workers and social beings (Becker, 1975). How these investments are made - whether by father, mother or state - is of tremendous social importance as well as interest here.
When families change through ageing, adoption, separation or divorce, two models appear (Brinig, 1996). Choice between them will dominate law reform choices. One model springs naturally from an emphasis on contract: this is the sovereign nation model (Kronman, 1985). The other is an outgrowth of the principal-agent discussions found in the covenant or firm: the franchise model (Hadfield, 1990). Dissolution of marriage, adoption and emancipation might constitute a return to contractualization of the family. But can a legal decree, or a statute, really terminate a permanent relationship? What are the consequences of doing so? Transaction costs, bargaining power and equality come to the forefront again, as do the question of externalities (in terms of the effect on children and the stability of relationships themselves) and the extraction of quasi-rents.
A final concern might surround the role of law and lawyers. Legal academics have long puzzled over which comes first, social change or law reform. What is not generally discussed is the question of what happens if the law does not accurately reflect what is empirically true. An example of this problem in the family law context is the duties and obligations of fathers: the legal consequences flow from the biological relationship, while recent sociological evidence shows that emotional allegiance follows the man’s attachment to his current mate. Thus, if law were to follow inclination, support and custodial responsibilities would be owed by the stepfather, not the birth father, following divorce. A final set of questions revolves around the goals society sets for families. Should we return to an older (more covenantal) rule of law, with the hope that society will follow? For example, we may question whether laws should be drawn (or reformed) to make divorce more difficult, to make care for the elderly a family, rather than a societal or individual, responsibility, or to discourage out-of-wedlock child bearing.
There are thus three main parts of a law and economics of the family, roughly dividing family law into studies of market behaviour (family formation), the family firm (functioning families or husband and wife and parent and child), and the family as franchise (post-divorce and post-emancipation relationships). At the beginning of relationships, market principles dominate, while after families are formed the better paradigm is covenant, for franchise relationships may be described as the vestiges of covenant. The law and economics of the family should be constant through various countries and economies. The transition economies of Europe, while perhaps having a different property tradition from that of the English-speaking countries, have the same family structures. As the transitional European countries choose or reform their family laws, it may be helpful to look at the experience of other Western nations, particularly in terms of divorce and custody laws.