Sunday, March 28, 2010

Contracts or how to avoid a divorce

The wedding wave has arrived in Cambridge. Over the past 3 months, 4 of my brilliant classmates decided to get engaged. As I plan a trip to Pakistan to attend one wedding, I have started to think on what makes a marriage successful?

My answer to that was: contract theory! Marriages should be viewed as partnership contract between two people and not as romantic fate. Before people start thinking that I'm a cold-hearted bitch, I have to say I'm actually more romantic than most people: I want a marriage that lasts, I don't think I could go through a divorce without losing my mind. That said: let's analyze contract theory a little bit.

As we have learned in contract theory class, to draw a good contract you must go through 3 phases: gather internal information of what you want to achieve in the partnership, negotiate and explicit the deal terms with your counterpart, codify it so a third party can enforce the contract at an eventual breach. Problems arise because contracts are incomplete: you can never foresee all the possibilities of life when you draw a contract and there is a possibility that one of the parties may want to renegotiate the contract because they feel that unforeseen events have altered they payoff of the partnership.

If you're lost in the economics-jargon, worry not, my dear.

To have a successful marriage you have to first understand who you are and what you expect from a marriage (how many hours you want to dedicate to the family vs. work, how many kids you wanna have, what kind if education you want to give them, how you feel about savings vs spending, how ambitious are you, should you have a TV on the living room or in the bedroom, etc.). When you have that clear you can talk to your partner (who also knows what  s/he wants) and you can understand the other and compromise to codify the mutual understanding into one marriage contract. You know your role and you trust the other to follow their role. If people took the time to actually understand what they want and communicate it to the partner, I think many divorces (aka contract renegotiation) would be avoided because we would have a better contract on the first place.

In my view, marriage contracts should have already stated that they will have periodic revisions as to make sure that the partners are still happy after so many unforeseen events (aka life) happen.

My only caveat would be: DO NOT OVER-REGULATE! I personally hate to be micro-managed and would be annoyed to the point of leaving the negotiation table if I had a partner that would insist on negotiating details such appropriate skirt length, authorized nail polish colors, appropriate time spent on bed on Sunday mornings, etc, etc. Just let me be!