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Party Autonomy in International Family Law: A Note from an Economic Perspective [Volume 6 – 2016]

1 December 2016

Paulius Jurcys & Mark Fenwick
Party Autonomy in International Family Law:
A Note from an Economic Perspective
Paulius Jurcys∗ & Mark Fenwick∗

1. Globalization & the Family

In most societies, the family is considered one of the most important institutions. The family is at the core of the preservation and transmission of moral, ethical, religious and cultural values. The importance of the family to the society can be explained also from an economic perspective (the family as a household): family forms the economic nucleus for any country regardless of the degree of economic modernization. The family’s central position in the architecture of society can, at least in part, explain why marital relations have been institutionalized by religious, social and legal norms. Until relatively recently, family matters have deemed to be a matter of domestic law. Nevertheless, the emergence of new means of transportation and communication, and other social changes associated with so-called globalization, have facilitated economic and social interaction which infringes upon the territories of nation states. The expansion of transportation has opened the gates for cross-border trade and the development of multi-state corporations. At the same time, the possibility of traveling overseas gradually became affordable for ordinary citizens resulting in tourist wedding proceedings in Las Vegas reproductive tourism and surrogate motherhood in India.

The relationship among citizens of different states who have decided to live together, and perhaps also get married and have children has resulted in numerous well-documented conflict of laws problems. In legal practice, such conflicts between different national laws are usually solved by trying to identify the law of the country that bears the “closest connection” to the problem. The closest connection principle was proposed in the middle of the nineteenth century by the German legal thinker Friedrich Carl von Savigny. Savigny argued that in order to determine the governing law, one should try to determine the seat of a particular legal relationship. Over the time, a number of connecting factors were developed for family law disputes (e.g., nationality, place of (common) habitual domicile/residence, place of celebration, location of the assets, the location of the forum etc.). Until very recently, such factors played an instrumental role in determining the governing law. Yet, in an age of globalization people often tend to have several places of economic interest (short-term job postings, ownership of property abroad etc.). Accordingly, territorial connecting factors have lost much of their normative force in pinpointing to the law that is most appropriate – or the best fit – to govern a particular social relationship. At the turn of the millennia, a number of national family laws were modified and international treaties adopted in order to alleviate such cultural conflicts.

The increased mobility of persons has thus changed the landscape of family law. Globalisation of marital relations brings to the forefront the question whether, and if so, to what extent party autonomy should be allowed. In the last few decades, there has been growing support for party autonomy in different areas of private international law. First and foremost, party autonomy has become the cornerstone principle for international contracts. More recently, the discussion has focused on the need to extend the scope of party autonomy in other areas such as multi-state torts, intellectual property as well as family law. Yet, despite the fact that the party autonomy principle has been introduced into various national, regional and international instruments dealing with specific family law matters, it has received surprisingly little attention in the academic literature.

We begin this paper by a short overview of the recent legislative attempts to provide for more party autonomy in various fields of international family law. A closer look at the academic literature reveals that the prevailing opinion that freedom to choose the governing law stems from national constitutional traditions. Section 2 discusses a number of arguments that legal scholars have adopted in justifying party autonomy and identify some limitations in these views. We find such legal discussion incomplete and suggest that party autonomy might also be approached from a law and economics perspective. Hence, Section 3 of this paper briefly reviews some of the main points that have been raised by economists who tried to explain the socio-economic function of family.

The economic rationale of the family provides solid grounds to criticise the popular opinion that approaches marriage and other marital dealings as if they were an ordinary commercial transaction. For example, in one of the recent cases decided by the UK Supreme Court, Radmacher v Granatino, the attorney of the wife made a public statement that “Pre-nups are like a form of fire insurance – far better taken out before the event”. In this paper we try to challenge such a “simple” economic account of marriage. It is indeed very easy to argue that marital agreements are just another kind of commercial transaction; an assumption which opens the gates to proliferation of party autonomy in international family law matters. However, we challenge such a simplified account by questioning whether there are arguments that might support the opposite approach (i.e., that marriage is more that a pure commercial dealing between two trade partners) in more secular societies such as Japan.

Based on economic findings expounded in Section 3, we further argue that marriage and other marital dealings have a “surplus value” to the society. We show how information asymmetries and matrimonial dealings (fertility, investment in children’s human capital and resource allocation efficiency within families) affect the economic development of societies. Such externalities reveal that matrimonial relations are not simple contracts but have broader socio-economic ramifications. Moreover, such a broader view of the family is further elaborated by acknowledging that the family also performs a signalling function. There has been only little debate about the ramifications of the signalling function of marriage in the legal literature, and we believe that this approach that provides some thought-provoking considerations that can be also applied in debates about party autonomy in international family law, more generally. In contrast to the “simple” account which deems marital agreements and market transactions as tantamount, we show that acknowledgement of the “surplus value” and signalling function of family highlights the dangers of straightforward conclusions about family-related questions.

2. Legal Justifications of Party Autonomy

After the Second World War, many national courts and legislators as well as supranational law-making bodies such as the Hague Conference on Private International Law became increasingly occupied with conflict of laws matters in the field of family law. Traditional connecting factors such as nationality or habitual residence were no longer conceived as truly helpful in determining the governing law. This is mainly due to the increasing mobility of persons and societal changes around the globe mentioned above. Nowadays, such issues as wedding or reproductive tourism pose further incentives to discuss the possible global alternatives to deal with the conflict of laws in international family law area. In this discourse, party autonomy is considered as a possible tool to supplement, if not replace, rigid territorial connecting factors and hence align choice of law mechanisms to the changing needs of social and economic reality. This section is divided into two parts: section 2.1. provides a short overview of the most notable legal instruments in international family law which allow for party autonomy; and section 2.2. will briefly review some of the main arguments that are invoked with regard to the boundaries of party autonomy.

2.1. The Proliferation of Party Autonomy

Party autonomy plays an important role in various kinds of marital relations: a couple may choose the place of celebration, decide under which country’s law their marital property issues are governed, under which law they should get divorced or which law should govern the consequences of the dissolution of marriage. The proliferation of party autonomy could be explained, in part, by societal changes that have occurred in society over the course of the the last century. Recognition of sexual equality and growing living standards contributed to the transformation in societal values, which are gradually entrenched in new family laws.

Similar developments have been taking place in the international legal domain, as well. For instance, in 2011, the UK Supreme Court rendered a notable judgment in case Radmacher v Granatino. In this case a dispute arose over the legal effects of a pre-nuptial agreement, which was validly made in Germany under the German law. At the time of marriage, a wealthy couple concluded a pre-nuptial agreement in which they agreed not make any claims to each other’s property in the event that they decide to split. The couple moved from Germany to UK, where the husband (earlier, a successful investment banker) became a university researcher. During the divorce proceedings, the husband argued that the pre-nuptial agreement should be not enforceable before the UK courts, as was established in the long-standing jurisprudence of English law. However, the Supreme Court decided that in certain circumstances such agreements could have a decisive and compelling weight attached to them. According to Lord Phillips, “the reason why the court should give weight to a nuptial agreement is the respect for individual autonomy.”

A number of regional and international instruments allow parties to exercise their autonomy by determining the governing law. As regards matrimonial property regimes, the 1978 Hague Convention had become a solid source of reference for subsequent modernization of conflicts rules at a domestic and international level. Party autonomy is a cornerstone pillar of the Convention that further distinguishes choice of law agreements made before and after the marriage. If a choice of law agreement is made before the marriage, parties may only designate: (a) the law of any State whose national is either spouse, or (b) in which he/she is habitually resident at the time of designation; or (c) the law of the first State where one of the spouses establishes a new habitual residence after marriage (Art. 3). An agreement after the celebration of marriage is be limited to the law of one of the parties’ nationality or habitual residence (Art. 6). In addition, it should be noted that in the 1978 Convention the place of common habitual residence of the spouses is treated as a general connecting factor (Art. 4); i.e., the law of the State in which parties firstly establish their common habitual residence is applicable to matrimonial property by default.

In the EU, there is an on-going initiative to prepare a regulation on the choice of law to matrimonial property. Since the outset of the drafting process, “a broad consensus emerged” that spouses should be given an albeit limited freedom in choosing the governing law. Hence, pursuant to Article 16 of the 2011 Proposal, the parties can make a choice of law (a) of the state of common habitual residence, or (b) the habitual residence or (c) the law of nationality of one of the spouses. Parties are also allowed to make an agreement after the celebration of marriage; however, such an alteration of choice is again limited to the law of the state of habitual residence or nationality of one of them (Art. 18).

In so far as maintenance obligations are concerned, the 2007 Hague Maintenance Protocol allows the parties to choose the law of the forum (Art. 7). Similarly, the EU Maintenance Regulation establishes the same choice of law mechanism as the Hague Protocol which means that the parties are allowed to choose lex fori (Art. 15). The so-called Rome III Regulation, which deals with matters of divorce and legal separation, also allows party autonomy. Nevertheless, such freedom of choice is not absolute: parties can designate as the applicable law only (a) the law of their common habitual residence at the time of the agreement; or (b) their last common habitual residence, or (c) the law of State whose national is one of the parties at the time of the agreement; or (d) forum law (Art. 5).

There is another important instrument recently adopted in the EU: the so-called EU Succession Regulation which will come into force in 2015. This establishes a comprehensive legal framework covering various issues pertaining to jurisdiction, choice of law, recognition and enforcement as well of decisions and authentic instruments in matters of wills and succession. It provides for a legal basis for the European Certificate of Succession which should play an important role in legal practice. As for choice of law, Article 22 empowers the testator to choose the law of his nationality at the time of making the choice or at the time of death. If a person possesses multiple nationalities, he or she may choose the law of any of the States whose nationality he/she possesses at the time of making the choice or at the time of death.

2.2. Legal Justifications and Limits of Party Autonomy

A number of reasons are invoked in order to support the legislative decision to allow the parties to exercise (a limited) choice of law in various family matters. Firstly, it has been argued that the right to choose the governing law is one of the constituents of individual freedom (private autonomy) which is protected by constitutions of liberal democracies. Second, it is often indicated that party autonomy adds more flexibility to choice-of-law mechanism. Thirdly, the possibility of designating the law of a particular state provides the parties with more legal certainty and predictability. Fourth, party autonomy is also considered as a possible tool to achieve certain policy objectives. For instance, in the EU, party autonomy in the area of maintenance obligations was favored because it is assumed that this should facilitate the dissolution of marriage. Fifth justification of party autonomy is even more general: it is argued that party autonomy facilitates the interface of various legal systems, induces cooperation between judicial and/or administrative institutions of different states. Furthermore, party autonomy could be seen as a tool of harmonization of divergent legal systems which also helps to eliminate complexity of choice of law system and make it more fair to the parties.

But as any other principle of law, party autonomy is not absolute; it is subject to certain limitations. This is so because the principle of party autonomy needs to be fine tuned with other general principles of law. Three main arguments have been referred to in an attempt to define the boundaries of party autonomy: (a) sovereignty, (b) public order and mandatory rules, and (c) protection of weaker parties. These three arguments are often closely intertwined both in theory and practice.

The main argument which is invoked is the need to reconcile autonomy of the parties with the sovereignty of the state. In international law, the principle of absolute sovereignty was developed in the nineteenth century during which nation states fully emerged. At that time, sovereignty meant that states were absolutely independent from each other and possess full powers to regulate their internal matters by adopting statutes. Such domestic statutes we deemed to have legal effects only within the territorial boundaries of the enacting state. More recently, the economic integration spurred the attempts to reconsider the idea of sovereignty.

Originally, private international law scholars questioned whether and under what circumstances laws of other states should be applied and override the law of the forum which was applicable by default. In such a background, the role of party autonomy could obviously very limited; it has been sometimes described as a “privilege” conferred to private individuals by the state. This could explain why there was almost no space for party autonomy in family law matters. Even today family law remains very closely related to the cultural and social environment of each state. Accordingly, it has been widely accepted that family law norms should be of an imperative nature and help maintain the social stability.

The second argument that is often referred to in trying to set the limits to party autonomy is public policy and mandatory rules. It is argued that parties’ agreement as to the governing law should not be given effect whenever certain public values need to be safeguarded or certain imperative rules of the forum state (or even the third state) have to be applied. For example, the main reason why UK refused to join the 2007 Hague Protocol on maintenance obligations was the long standing position of the UK courts to apply forum law; it was argued that allowing parties to choose the governing law would run counter to the public policy of UK. In the area of succession, the court may refer to public policy as a reason to ignore testator’s choice of foreign law, if the inheritance concerns situations that could be relevant to national economy (succession of land at the border territories) or if is necessary to protect the surviving spouse from disinheritance. More generally, public policy may be referred to in order to justify the limitation of party autonomy if it is necessary to prevent forum shopping or the choice of the law which bears little or no actual connection to the dispute.

Third, party autonomy should be restricted if it is necessary to protect interests of certain stakeholders. This is especially the case in situations where one of the parties is relatively weaker. For example, the 2007 Hague Maintenance Protocol provides that choice of law is restricted in situations involving vulnerable persons having claim to maintenance (i.e., minors or vulnerable adults, Art. 8(3)). In some cases concerning marital agreements, parties’ choice of law clause may not be given effect if one of the parties is weaker or the other party was in the condition which allowed them to determined certain clauses of the agreement unilaterally. In the EU Succession Regulation, the testator is allowed to designate only the law of his/her nationality; in the absence of choice, the law of the place of testators’ habitual residence would be applicable). Such restriction of choice is justified by the objective to protect the interests of the persons entitled to a reserved share of the testator’s estate.

In practice, the exercise of choice of law is controlled by imposing certain form requirements. Article 5(2) of the 1989 Hague Succession Convention establishes a requirement that a designation of the governing law should be expressed in a statement made in accordance with the formal requirements for dispositions of property upon death and that the existence and material validity of the act of designation are governed by the law designated. Should the designation of the law be invalid, objective connecting factors would have to be applied in order to determine the governing law. The matters related to formal validity cover such issues as mistake, duress or undue influence, all of which are related to the same problem of whether the testator’s designation of a particular law was made freely. Article 7 of the Rome III Regulation provides that the agreement should be made in writing and signed by both of the parties. In addition, the parties have to comply with more stringent form requirements if this is so provided in the law of the State in which both of them have their habitual residence at the time when the agreement is made. Similar provisions may be found in Article 19 of the 2011 Proposal for Regulation for Matrimonial Property.

3. Economic Perspectives on Marital Issues

“Life is short. Have an affair.” This is a slogan of Ashley Madison – one of the most popular dating sites for married couples. At the time of writing this paper, it had more than 26 million users in 37 countries. Ashley Madison was established in 2001 in Canada by Noel Biderman (he previously was a practicing attorney) and his wife. Once asked by a Bloomberg journalist whether Ashley Madison does not promote cheating, Biderman replied that his online dating portal “does not need a promotion”; instead, since the beginning, this project aimed to “perfect the affair”. Acknowledging that it may have some collateral damage, Biderman suggested that his dating site “brings two like-minded people together.” Biderman identified a potential marketplace with “buyers” and “sellers”; and created Ashley Madison in order to connect them.

Recently, in the academic literature there have been plenty attempts to apply economic theories to explain human behaviour outside monetary markets. Libraries are full of studies where questions related to crime, social welfare, education etc. are analysed from rational choice and efficiency perspectives. Many authors suggest, that human behaviour is driven by various sets of values and individual preferences. In this section, we review some of the arguments that have been advanced by economists who became interested in human decision-making with regard to family-related issues. We largely rely on the works of Gary S. Becker who was awarded Nobel Prize, at least in part, for his economic analysis of the family. Becker’s works laid the foundation for further explaining the interrelationship between marriage, fertility, human capital, dynamics of labor market and economic development. Such a review of economic perspective to family related issues provides for a solid ground for a more thorough understanding of the role of party autonomy in private law settings. This section focuses on five instances which show that individuals act rationally in various matrimonial matters: entering into marriage, fertility, human capital, divorce and economic development.

3.1. The Marriage Market

Becker begins his analysis by arguing that sooner or later most people come across such questions as whether to marry, whom to marry and how to divide the surplus from marriage. According to Becker, in considering whom to marry, people act selfishly and seek to increase their own welfare. When searching for a future spouse people care much about such traits as education, beauty, intelligence, age, place of birth or reputation of their partner. These traits are deemed as possible gains from the marriage. Traits also help explain why, according to Becker, less intelligent people are more likely to marry less intelligent people. In the same vein, children can also deemed as one of the “benefits” of getting married: those who do not want children, either marry later or remain single, and are more prone to divorce. Certainly, the financial position of a partner and the prospect of wage increase also serves as an incentive to get married with partners who are financially better-off.

The costs of marriage are first and foremost related to the expenses that are incurred while searching for partner. Those who search for a partner with specific characteristics (e.g., of certain minor religion or coming from a little populated area) are more likely to incur high costs for searching the matching date. In searching for a potential spouse, people also tend take into account the expected duration of the marriage: decisions to marry are made more accurately if the anticipated duration of marriage is long. A careful search gives an opportunity to obtain fuller information about the future spouse. However, the availability of the information depends on its nature: it may be relatively easy to find out about a potential partner’s educational background; and take much more time to get to get to know their personality and character.

In economic terms, it has been argued that people get married because of the compatibility or complementarity gains they get after joining a household. The utility from marriage depends on access to commodities which cannot be purchased in the market but which are produced within the household and cannot be consumed (e.g., health status, reputation, companionship, or love). Such commodities are not transferable among households; they can, however, be transferred among members of the same household.

There is a saying that “birds of the same feather flock together”. This is true especially if one notices that people of similar education or income often end up getting married. Although there are exceptions, people who have shared values or beliefs get married with an expectation to have a successful marriage life with little pain or anguish. Nevertheless, utility consideration (and the willingness to gain access to spouses’ wealth or other resources) could also in some cases explain why likes and un-likes end up as a couple.

Such a utilitarian view allowed Becker to put forward the idea about the existence of the marriage market. Marriages play an important role because they help achieve the market equilibrium between demand and supply. Each person tries to find a partner who maximizes her/his wellbeing. One of the notable features in the marriage market is that there is no, or very little, “bargaining”: in deciding whom to marry, future spouses consider such elements as partner’s age, schooling, or wage. In other words, decisions to marry are made by comparing the differences of access to nonmarket resources vis-à-vis remaining single.

3.2. Fertility and Resource Allocation within Families

According to Becker, the demand for children could be similarly explained in economic terms as well. The parents’ decision to have children depends, at least in part, on the relative level of income and costs of raising children. In some cultures, fertility may be affected by the uncertainty as to the sex of a child (e.g., parents may prefer to have boys than girls). It was argued above that every family seeks to maximize its utility. Thus, regardless of how many children spouses are willing to have, one of the crucial factors that determines fertility is family income. Families with low income may simply not be able to afford to have many children. More precisely, the birth of a child means additional costs for family that has to spend more on food, toys, school expenses, housing etc.

Becker makes a strong argument highlighting the link between family income, fertility and population. The decision to have children also depends on costs of child-rearing. In less developed economies or rural areas, child-rearing costs may be relatively lower than in highly industrialized regions. According to Becker, wages and child-rearing costs are the main factors that help understand why rural fertility is often higher than fertility of families living in large cities. Parents act rationally and the major cost for childcare is time, i..e opportunity costs. Even if wages for men and women are aligned, women tend to spend more time for “non-market” activities such as child-rearing because their productivity at home is usually higher than the productivity of men. Such specialization within the family may be beneficial if the marriage lasts long; however, if marriage comes to a sudden end, the spouse who spent more time for household activities may face problems in the market due to the loss of income earning skills.

On a broader scale, Becker also managed to show the close relationship between fertility and long-term population growth. Fertility depends on the per capita income. Economic development leads to increasing value of time which accordingly raises costs for such non-market activities as child-rearing. When child-rearing costs increase, women tend to become more involved in market activities and thus become less available for household. Hence, fertility growth often coincides with economic growth in a particular region.

3.3. Investment in Human Capital

Economists have also managed to identify that due to high mortality rate of children in less developed economies increases the demand for children. The decline of child mortality means that more children survive which leads to falling fertility rates in the long-term. These processes coincide with the economic progress of a country and increasing living standards. The decline in mortality not only reduces the demand for children, it also facilitates investment in child’s human capital. In societies with high mortality rates, parents act rationally and abstain for investing much into the education and human capital of their children. However, once economic conditions improve and child survival rate increase, parents become more altruistic and tend to invest much more in the human capital of their family members.

Altruism, loyalty, love, duty or the sense of guilt are the factors that facilitate intergenerational transfer. Such “transactions” between generations are not irrational; conversely, parents tend to view their own utility as depending on children’s utility. Decisions about investment in human capital are based on the calculation of costs and benefits. Costs usually amount to the expenses for obtaining such knowledge while benefits could range from obtaining new skills or work habits, branding (i.e., graduation from a prestigious school), to better occupation opportunities and higher trustworthiness. Generally, parents in more industrialized countries invest more in human capital of their children hoping to protect themselves against the risks of old age. Investments in knowledge and human capital are more effective if previous investments are large. Moreover, the human capital of children depends on the endowments or gifts from their parents. As mentioned above, families in less developed countries seem inclined to have more children rather than invest in human capital.

Accumulation of human capital plays an important role in the economic growth of a country. Inequality in earnings, differences in talent and social or family background have significant ramifications for investment in human capital. In less developed countries, there is little human capital. Moreover, it is easy to understand the reasons behind the so-called “brain drain” that occurs from less developed to more economically advanced societies. Governments are concerned about the creation of efficient policies that would facilitate the growth of human capital in the society. Accumulation of human capital has wide ranging socio-economic effects. This is because human capital performs the function of a catalyst for the investment in science, education and technologies, and also explains why R&D is more focused on the advanced economies of the world. Human capital also helps reduce income inequality by empowering females to engage into full-time market activities.

3.4. Infidelity, Divorce and Information Asymmetry

How long should marriages last? In answering this question, economists often raise two points: one is utilitarian, the second relates to information asymmetries. Utilitarian arguments suggest that marriage should end when the aggregate welfare from living separately is higher than that obtained from remaining in marriage. In some cases, staying in the relationship could be more costly, especially, when the spouse no longer feels emotional, sexual, or financial gratification. If that is the case, terminating the relationship is one option.

In most countries, incentives to get married are provided in the law. In considering whether to get married or not, people also take into account the issue of the grounds of divorce (i.e. whether it is easy – costly – or not to exit from the marital relationships). Traditionally, death was the main cause of marital dissolution. In addition to that, many legal systems have provided for the possibility to end the marriage if one of the spouses committed an act of adultery, cruelty or desertion. In other words, marriage dissolution was only possible if there was fault on behalf of one of the spouses. However, in reality, marriages have often failed for a myriad of other reasons. A fault divorce system is usually founded on a legislative intent to create incentives to exercise a diligent choice prior to entering into marriage. In order to end the relationship within a fault based system of divorce, spouses had to falsify evidence and commit perjury in divorce proceedings; whereas courts usually faced significant difficulties in establishing the factual background to the case.

As societies have developed, fault-based divorce regimes have gradually been substituted, if not replaced, by “no fault” systems for divorce when both parties agree to terminate their marriage. This can also be regarded as part of a greater initiative to abolish legal regulations that institutionalized traditional hierarchical structures. A no fault divorce system is preferable when the potential costs of divorce are relatively low. This could happen at the early stage of the marriage or when spouses agree on the terms of divorce. Besides, in no-fault regimes, statutes usually contain regulations that prescribe the financial consequences of marriage dissolution. It is sometimes submitted, that in the case of no-fault divorce the original commitment could be viewed as “non-binding”.

The emergence of no-fault divorce systems could be better explained by the second argument mentioned above, namely information asymmetries. For those economists who do not hesitate to equate marriage with insurance contracts, the termination of a marriage is a relatively simple solution to solve the information asymmetry problem. It is argued that marriages succumb due to the ex ante failure to identify all of the traits of the soon-to-be spouse. As mentioned above, search costs could be prohibitively high, especially when it comes to difficult to identify characteristics of a person. High search costs tend to lead to disappointment. Thus, divorce could be seen as one possible regulatory mechanism to adjust initial information asymmetries. In this regard, it is suggested that wealthier couples are less likely to divorce because they gain more from being together; while economically less well established women may think that there is little value in staying with someone who is unable to work or abuses alcohol.

Behavioural economists who are working with data provided by Ashley Madison have made some notable observations about the dynamics in marital relations and increasing divorce rates. According to this research, there seems to be a close link between income equality, female infidelity, cheating and divorce. Before deciding whether to provide married dating services in a specific country, the managers of Ashley Madison would therefore carefully examine the income equality there in order to assess whether there was sufficient potential demand for their services. Income equality is the main variable which shows whether women are likely to seek sexual opportunities outside the marriage. For instance, the decision to enter the Australian market was based on the relatively high level of equality in salaries which also implied that women are employed on equal terms in public and private organisations. Financially more secure women are relatively well-placed to take care of themselves and their children, and also – at least according to Ashley Madison – tend to be less concerned about the social stigma that attaches to an extra-marital relationship.

It could be argued that married dating sites such as Ashley Madison merely fill in the gap during the period of marriage dissolution by providing a trustworthy platform that responds to the so-called “female monogamy gap”. The take away from the Ashley Madison story seems to be that greater female participation is directly related to increasing numbers of divorce and the proliferation of no-fault divorce regimes that make such divorce possible. An economist might highlight the transition from state-backed restrictions towards more “efficient” institutions that facilitate the division of marital property and spousal support. In addition, marital instability has further economic implications. If a couple does not see any bright future perspectives in marital life, there is little incentive to invest in the family welfare, common household; marital discord may also negatively affect fertility rates and investment in human capital.

4. The “Surplus Value” of Family & its Consequences

4.1. Surplus Value of Family

This short overview of the economic perspective provides for a slightly more nuanced picture of the family than the plain statement by the attorney in the Radmacher v Granatino case. The family is certainly more than a relational contract. While one may about the existence of marriage market, it was also shown that there is relatively little bargaining in deciding whether to marry or not. A simple view equating family with other market transactions appears to ignore the externalities of a family: to put it differently, the family is not merely a deed between two persons; it also performs an important role and functions in society. In legal scholarship, it has been also submitted that marriage and other questions dealt with by family law are closely intertwined with person’s capacity and status which makes them distinct from other forms of commercial agreements.

As was shown in the previous section, marriages play an important role in the society. Fertility rates directly affect the development of the national economy and investment in human capital. Non-market goods such as care, trust and compassion can flourish in closed circles such as family kinships. Informal family relations not only contribute to the enforcement of moral and social norms; families have the potential become incubators of socially valuable ideas and business models. Therefore, state policies are shaped to maintain stable family relations and increase the welfare of family members (first and foremost, parents and children). Information costs and efficiency considerations help explain why monogamous families are optimal. In some societies, polygyny is socially acceptable provided that a husband is financially capable to maintain his family.

Information asymmetry together with costs-benefits considerations helps better explain the change in family laws from a fault to no-fault divorce regimes. States are interested in providing ex ante certainty about the legal consequences of marriage. More flexibility is introduced for the parties to decide matters related to the distribution of their matrimonial property, as well as mutual obligations between spouses and children. In this regard, it is important to note that matrimonial relations often produce externalities – effects to other parties than husband and wife. The existence of externalities serves as a justification for government to intervene by regulating matrimonial relations. For instance, in cases where spouses decide to end their marriage, a set of limitations to bargaining may be imposed, especially when it comes to the distribution of matrimonial property or maintenance. Exceeding optimism at the time of marriage negatively affects search costs. At the time of divorce, certain statutory rules may have to be followed in order to adjust investments made to non-market activities such as child-rearing or household.

4.2. Signaling Function of Marriage

We started this paper by challenging the statement that marriage is like an insurance contract. We also noted that equating marriage and other market transactions represents an overly simplistic line of reasoning. A more difficult task is to find an argument showing why marriage is under certain circumstances somewhat more than a simple market transaction and using economic perspectives to understand these distinctive aspects of marriage. Various economic theories have tried to explain the rationale behind the marriage. Specialization theory suggests that marriage opens the possibility to share future costs related to cohabitation and child-raising. Investment theory views marriage as a guarantee for investments that spouses are going to make in the future. In Western societies, the difference between marriage and other forms of contracts could be easily explained by referring to the religious considerations: that marriage is an oath for life that cannot be revoked. However, the same reasoning can offer little support to explain the reason for getting married in secular societies, such as Japan. Some marital agreements related to property, maintenance or testamentary dispositions do indeed resemble market transactions. However, other dealings, such as the decision to get married seem to have a more peculiar character.

By introducing the economic perspective on marriage, we tried to show that such variables as information asymmetry and cost-benefit analysis do play an important role in marital settings as well. In addition, we tried to show that most marital relations contain externalities. Indeed, marriage could be viewed as an institution that contains some elements of a public good. An overwhelming majority of society have a clear interest in the proper functioning of marriage due to its importance in the overall social structure. In this context, marriage as a social institution contains multiple externalities: the decision to marry has implications to fertility and demographic dynamics as well as the accumulation of human capital in the society. Children could be also viewed as an externality that justifies a certain degree of regulatory paternalism and governmental intervention in establishing clear default rules regarding the functioning of marriage.

 

Figure 1. Traditional economic theories and externalities of marriage

 

In this section we move on to argue that marriage also performs a signaling function. Signaling offers an additional line of reasoning which helps explaining how matrimonial relations in general, and marriage, in particular, essentially differ from other market-based transactions. Although traditional economic theories of specialization and investment provide many insights about the various reasons behind the decision to get married; these theories are not necessarily complete. Take a situation when people may get married without any intent to have children or spouses may agree to continue pursuing their own careers and share their household responsibilities. It is clear that the decision to strengthen the bonds by getting married represents more than a commitment to each other. Getting married also represents the both parties signal to society about their preferences to engage in a particular form of social and sexual relations.

Moreover, the signaling function of marriage plays a crucial role in the marriage market: it performs an information economizing function. In a world of information asymmetries, the fact that a person is looking for a marriage partner is also a signal to others who are looking for potential partner. Yet, knowing that person A is looking for a marriage partner, discourages other persons to approach A, especially if they are not serious about engaging in more permanent relationship. In other words, signaling aims to curtail information asymmetries among the participants in the “marriage market” and potentially improves the search and sorting process.

In the marriage market, a signaling function may explain why there is only one form of marriage in society. The question “Are you married?” has greater informational value because the answer to this question sends a clear signal to the society about that person’s engagement, commitment to his partner as well as possibly his or her social rank. The signaling function highlights the three-dimensional aspect of marriage: namely, that it goes beyond an agreement among the parties and has broader implications vis-à-vis society as a whole. Such a three-dimensional perspective explains why there is only one form of marriage in the society and why is it different from other forms of commitments (e.g., partnerships, pacts or factual cohabitation). It is true, however, that signaling perspective to marriage does not answer the question about as to what kind of relationships are more socially desirable. Nevertheless, thinking about the signaling function of marriage might be useful in the law-making process. Namely, in order to reduce information asymmetries in the society it is important to draw a clear line between marriage and other forms of cohabitation.

Such a three-dimensional understanding of marriage is even more apparent in an Asian context, mainly because most marriages are arranged by parents or a matchmaker acting on behalf of the parents (bāobàn hūnyin). In China, for example, parents usually try to find a spouse for their children; and marriage intermediaries (matchmakers) are often involved in this process. Respect is often cited as the main reason why children simply defer to their parents’ choices in this decision. In the language of economics, this could be again defined in terms of information asymmetries: in the absence of verifiable information, children defer their decisions to someone whom the children deem to be better placed to decide about what is in the their best interests. In this context, it is generally and routinely assumed that parents are better situated to make a decision about the utility of their children.

Arranged marriages also provides a good example of a situation that economists refer to as an information cascade. Information cascades usually occur when people rely on others deemed to be better placed to exercise judgment, and disregard the information they personally possess. A typical example is going to a restaurant (a person intending to visit restaurant α decides to go to nearby restaurant ß because the latter is more crowded). Information cascades happen around us every day especially when people have to make decisions but do not possess a great deal of reliable information and such information is not readily available. People thus draw inferences from choices made by others. More importantly, such inferences and imitation of others are not irrational. On the contrary, people make mindful decisions based on others’ decisions because they recognize limitations in their own situation, or cognitive and informational resources. Reliance on others is often cost-efficient and can bring direct benefits. Information cascades might explain how social conventions occur, are maintained and evolve over time.

Nevertheless, in reality, signals may be of a different quality. In some cases, the reliance on the behavior of others may curtail decision-making costs. In other cases, herd behavior may be undesirable from the social welfare point of view, especially when the crowd follows the “wrong” signal. In such a situation, it is important to figure out who is the first-mover. A mistake made by the first one in the chain may – depending on the circumstances – turn into misleading signal and lead to socially undesirable non-optimal outcomes.

In the context of family law, there are also situations where non-verifiable information comes into play. Members of the society may attribute a certain meaning to such institutions as marriage or having children. A couple gets married without knowing how their relationship will develop in the future. Moreover, from the outsider’s point of view, the fact that a couple is married attributes certain meaning to the relationship between the spouses, and the likely similarity of their attitudes. Legally speaking, family laws may impose certain duties on spouses vis-à-vis each other as well as other family members (children, parents). Yet, the recent reforms in various countries’ family law shows that there a rather limited role of law in dealing with inter-personal relationship and non-verifiable information. This is most obvious in the transition from fault-based divorce regime towards consensual divorce and the fact that in the fault-based divorce regime spouses had to mislead the authorities about the fact or origins of fault in order to obtain a divorce.

 

Figure 2. A sophisticated view of the “signaling function” of marriage

 

The discussion about information cascades also reveals that signals are transmitted in multiple directions. In the same way that society attributes certain meaning to the matrimonial relations (even if there is a significant degree of unverifiable information), married couples also receive signals about the society. The most obvious example could be in the case of the proliferation of divorce. Married couples who are not necessarily satisfied with their married life may observe how the lives of other divorced members of the society turn out, and based on a perception of that information from the outside they will make their own decision whether to end marriage or not. It should be also mentioned that information cascades and imitation of behavior of this kind does not deny that reliance on others’ experiences should be separated from other social phenomena that similarly involve a third party affect on individual decision making, such as social coercion or pressure to conform.

4.3. Individuality, Autonomy, Love

In this final section of the paper we would like to indicate how one might supplement the conventional economic analysis of family law by examining some sociological considerations about the notion of autonomy. These might provide an alternative future direction in the development of the conflicts of laws discussion. Discussion about autonomy is closely related to the more complex of notion of individuality and a more general process of individualization that characterizes sociological accounts of modernity. One of the key features of modern societies has been a process of heightened functional differentiation and this process has had significant impact on the position of individuals within society. Individuals are invited and provoked to engage in a constant process of self-understanding and to assert their distinctiveness within society by engaging in an affirmation of their unique personality traits or character. In order for individuals to communicate with the surrounding environment, modern societies develop various means – or semantics – of communication: money, power, authority, love, and the law. These means of communication enable improbable communication to be made successfully between “unique” individuals. In this context, money, power, and love can be viewed as codes of communication that not only facilitate the process of individualization, but also enhance communication and bridge the distance that arises between individuals.

Social scientists who have been examining about this contemporary architecture of communication notice that such general means of communication make it possible to bridge close and distant environments, and to establish reciprocally satisfying actions in situations and relationships that might otherwise seem improbable. The establishment of communication becomes especially important in the context of increasing individualization (i.e. a social situation in which there is much greater potential for an increase in social distance, and misunderstanding and conflict). There has been also a significant transition in the means of communication per se.

A closer look to the evolution of the semantics of love shows that there have several turning points since medieval times. Idealistic understandings of love in the seventeenth century were materialized in the form of medieval minnessangs and perfection of love’s object; love was idealized and seen as unattainable. This changed in the 17th century when love took the shape of pleasure (plaisir) that later evolved into various independent emotions of passion, love and desire. In the modern world, love as a communicative code is individualized in the sense that the basis of love is Ego’s recognition of Alter’s individuality and vice versa. According to this type of account, modern love is a kind of semantics within which we can symbolically communicate and acknowledge, recognize, respect and love our mutual individuality. At the same time, love is subject to and creates incommunicabilities that the semantics of love have constituted. Modern love is paradoxically and simultaneously both a source of individualization and social friction, and a mechanism for ameliorating and making sense of relationships and individuality in a hyper-individualized world.

Many consequences follow from this type of understanding of love. Identity is highly contextualized, depending on what contingencies are more favorable to each party. Pre-prescribed roles are displaced by fluid subject positions that are often contingent on unverifiable information within the family. At the level of communication improbable demands lead to communication breakdowns and increased individualization may lead to excessive demands; and when flame of love flickers out, then the behavior has to be amended to a more moderate form love comes into being when one exceeds from what can be demanded from legal entitlements.

Many of the themes in contemporary sociological accounts of love seem pertinent to any discussion of the role of law in the construction and maintenance of the family, and family law. How then does the concept of autonomy (which is, after all, a legal concept) connect with this process of individualization and the demand for the recognition of one’s individuality? Both discourses – namely love and law – provide a different semantics, but they are clearly overlapping in that both are premised on the distinctiveness of the individual and the importance of acknowledging and respecting that distinctiveness as it manifests itself in action, particularly through choice. In that respect, we can think of individual autonomy as providing a site of commonality between different media of communication in sociological modernity. Acknowledging the importance of these other discourses on the family seems important in order to understand the complex dynamics that drive the contemporary trend towards party autonomy.

5. Concluding Considerations

The discussion about the extension of party autonomy in international family law is expected to continue in the future. There are and will probably remain different opinions favoring or opposing to the party autonomy in family law. The argument based on the signaling function helps illustrate the surplus value of marriage and other forms of agreements in family law and should be further discussed in the future. The signaling perspective could become a catalyst in considering various legal issues related to party autonomy. It helps to expand the perspective and clarify that there are more than two stakeholders whose interests might be affected by the choice of law. Furthermore, signaling function highlights the surplus value of marriage (and probably other forms of family-related agreements). An economic perspective on party autonomy provides a different terminology that has the potential to help in a reconsideration of this issue and in the development of a different perspective. Signaling and “surplus value” might therefore be used in solving the following dilemma: does surplus value mean that party autonomy should be allowed to the widest possible extent? Certainly, the discussions will continue and one should hope that an interdisciplinary perspective to legal problems would receive more attention in the future.