Econ 200 Law & Economics, Foldvary

Friedman, Law’s Order

Chapter 13: Family law

Long term contracts due to relation-specific sunk costs.

Marriage and business.

Marriage is a bilateral monopoly.

Spouses have big relationship-specific investments.

The parties of a bilateral monopoly are vulnerable to one another.

There can be strategic behavior and opportunism.

They can protect themselves with a love relationship,

and also with a long-term complex contract.

Also cultural customs, family law.

Fewer children and less house work have changed marriage patterns,

including more frequent divorce.

Why is prostitution prohibited?

Laws prohibiting prostitution improve the bargaining position of women who want to get married. It reduces potential competition.

Giving a diamond engagement ring became a practice only in the 1930s.

The ring is a performance bond.

A jilted bride would keep the ring.


In U.S. law, it is illegal for prospective adoptive parents to pay a mother for permission to adopt her infant.

Hence, there is a price control of zero.

Shortages are dealt with by waiting, non-price rationing, and the underground market.

Why not buy babies?

Adopting cats

Why do organizations require qualifications to adopt a cat?

Are babies a social good?

A greater population has negative and positive externalities.