Friday, November 21, 2008

Gains From Trade...And Love

An interesting example to illustrate the prevalence of economic forces across a variety of settings: from trade between countries to falling in love.

In 1974, Gary Becker developed an economic theory of marriage that suggests marriage provides advantages through comparative advantage, the same concept that provides advantages from trade with neighbors, other states, and other countries. The U.S. exports soybeans to China because we are better* at growing soybeans, and China exports textiles to us because they are better at textiles. When two countries are skilled at producing different products, they can both be made better off by trading.

Becker suggested that gains from trade can also be found when individuals with different wage rates (or salaries) marry. One person has skills more valued by the market place, and the other has skills less valued by the market place. This means they are skilled at different things, which suggests trade can make both better off. Trade, here, refers not to the trading of bodily fluids but as roles in the household. One goes to work and makes a high salary, and the other stays at home and makes sure the children receive constant love and attention. As a result, everything that needs to get done for a happy family gets done with the utmost efficiency.

Recent research into happiness suggests the theory is correct. As the graph above shows, couples with large differences in wage rates receive larger jumps in happiness from getting married than couples with similar wage rates. Comparative advantage is present, and important, between countries and couples.

* "Better" is defined here in terms of opportunity costs of production

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