Selling My Wife

24 February 2007 at 9:45 pm 14 comments

| Peter Klein |

Alchian and Demsetz tell me I can fire my grocer. But can I sell my wife?

Here’s the context: Nicolai and I were discussing (via IM — we’re high-tech) my plans to attend an overseas conference. When he asked if I had checked with my wife before committing, I admitted that I hadn’t.

This led (naturally) to a discussion of original and derived judgment. I argued that while my wife has veto power over my travel plans (not to mention most other things), I am really in charge because I have given her this authority. In Foss-Foss-Klein terminology, her decision rights are delegated, or “derived,” while mine are primary, or “original.” (If you just fell off your chair, get back up and play along, just for the sake of argument.)

Nicolai reminded me that some of our colleagues think the original/derived distinction is a distinction without a difference. A de facto right is a right, whether we label it “original” or “derived.” I responded that there is a difference, namely that asset owners possess decision rights that non-owners do not. For example, the owner can sell the asset, while the hired worker, even if possessing a wide range of use rights, cannot. Moreover, the owner can choose — indeed must choose — which decision rights to delegate to subordinates. In general, no matter how “passive” the owner chooses to be, regarding day-to-day activities, the owner possess a kind of “ultimate” authority that cannot be delegated. (In the words of the great Canadian philosopher Geddy Lee, “If you choose not to decide, you still have made a choice.”) As evidence, note that the owner can take away all the subordinate’s decision rights by terminating the employment relationship — “selling” the subordinate, as it were.

We concluded that the original/derived judgment distinction can be applied to the family, but only if I have the right to sell my wife.

Entry filed under: - Klein -, Management Theory. Tags: .

“Lead Papers”? Leo Strauss, the Randian

14 Comments Add your own

  • 1. Cliff Grammich  |  25 February 2007 at 9:57 am

    My head hit the floor hard when I fell off the chair, so I’m probably not playing on the right field here. Still, being a Matthew 19:6 (not to mention a Mark 10:9) guy (“what God has joined together . . .”), I say, no, you have no right to sell your wife, especially in the same way an employer may have the right to terminate an employee.

    I’m not keen on prooftexts (though I do think the context and implications of this one are clear, at least for Christians), especially on a secular blog, and I understand, of course, the considerable jesting here. So, just to advance the game a little, let me say I would be interested in hearing how the concepts of original and derived judgments apply to (unbreakable?) lifetime contracts. Can these shift or be negotiated over time (with, for example, the missus having veto power now but yielding it back to you at some point?) within the lifetime contract?

  • 2. Steven Horwitz  |  25 February 2007 at 1:30 pm

    Peter,

    Your scholarship of rock is not as good as your scholarship in economics. The lyrics to “Free Will” are the words of Rush lyricist and drummer Neil Peart. They are only sung by Geddy Lee. Neil’s the “great Canadian philosopher” in question.

    That said, good taste in music rules among the Austrians.

    http://it.stlawu.edu/shor/Rush/rush.htm

  • 3. Peter Klein  |  25 February 2007 at 9:27 pm

    Steve, thanks for the correction. And I must say I’m impressed with your Rush page — complete with a link to a scholarly paper on “Rand, Rush, and Detotalizing the Utopianism of Progressive Rock”! Who says Austrian economists don’t have interesting hobbies? (Other examples: Larry White is a world-class expert on surf music, Spaghetti Westerns, and Bollywood cinema; Roy Cordato used to host a radio show on professional wrestling; and Roger Garrison is a leading authority on old Buicks. (Apologies if I’ve left someone out….)

  • 4. Kevin Carson  |  28 February 2007 at 1:33 am

    Assuming that you really are the residual claimant in your family firm, and your wife’s powers are all delegated… how do you deal with moral hazard and monitoring costs?

  • 5. Peter Klein  |  28 February 2007 at 11:10 am

    I better not reply to Kevin — Cliff may suffer permanent damage when his head hits the floor again.

  • 6. hervé legenvre  |  28 February 2007 at 1:58 pm

    The post at least helps me to understand why summer schools in economics do not happen in July and august. ;)

    As a phd student, with a parralel work career, i was puzzled by this when i discovered it.

  • 7. Steven Horwitz  |  28 February 2007 at 10:53 pm

    Roy actually had a TV show as well on local cable access. Ben Powell is a serious hiker/climber – he and Bob Lawson are tackling Kilamanjaro, or so they say.

    The only one without an interesting hobby is Boettke. ;) He’s just a hoops junkie.

  • 8. Marcin Tustin  |  27 March 2007 at 12:40 pm

    To take the point seriously, how does this work where both parties have the same right to sever the relationship – whether employment, or marital? (The latter of course has high costs associated with exercising that option)

  • 9. Marcin Tustin  |  27 March 2007 at 12:41 pm

    I note that there is a further credibility issue in whether the option would be exercised.

  • 10. Peter Klein  |  27 March 2007 at 9:40 pm

    Marcin, that is a good question. In our framework, judgment refers to decision-making over the deployment of productive assets, so the key question is who owns the relevant assets, not under what circumstances the relationship can be broken. My employee can quit whenever he wants, but he can’t take my assets with him when he leaves, so his decision rights over the use of my assets are delegated or derived.

    In an alliance or joint venture in which we both bring assets to the relationship — and, to an extent, even the employee owns his human capital — each party possesses some primary or original decision rights.

  • 11. Marcin Tustin  |  28 March 2007 at 4:55 am

    I have to say that it does look to me like this is a distinction without a difference. It’s not clear that theres anything significant in why an employee can’t sell assets of their employer – they just haven’t been delegated that right. Equally an owner could have their right to sell their assets restricted by law, or an employee could buy an option on an employer’s asset.

    The actual bundles of rights, and how people act having those rights, might be interesting, but I can’t see why you are interested in this derived/original distinction.

  • 12. Marcin Tustin  |  28 March 2007 at 4:57 am

    I’ve just realised that you’ve linked to a paper. If I thought CSS could do it, I would recommend doing something like putting the first letter of a link in heavy type.

  • 13. Peter Klein  |  28 March 2007 at 10:25 am

    Thanks for the CSS suggestion. We don’t want anyone to miss the links — especially if they are self-citations!

    The distinction we’re getting at depends critically on incomplete contracts and Knightian uncertainty. Owners possess rights that non-owners do not — for example, the right to determine the use of the asset in situations not specified by contract (in the same sense as Grossman and Hart’s residual rights of control). We also emphasize that if assets possess multiple attributes, some of which are unknown when contracts are written, then ownership brings with it decision rights over future attributes. Details are in the paper linked in the original post.

  • 14. Murder City Dispatch  |  1 April 2007 at 5:08 pm

    The semantics of wife-selling

    The problem with their position of are radical distinction is that they characterise delegation of full authority as an entrepreneurial act. Now, if one does this, then the delegate has the right to further delegate any and all rights. If this happens,…

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