How love conquered marriage

One of the key differences between developed and developing countries is the presence (or absence) of complete and functional markets. In my graduate development economics class, we spend a fair amount of time talking about the causes and implications of incomplete labour markets, credit markets, and insurance markets. The absence of functional insurance markets is a big problem for people in developing countries and as you would expect, they have developed various strategies to insure themselves (either individually, as a household/family, or as a community) against adverse shocks such as bad weather. These strategies include share-cropping (which shares the risk of weather shocks between the tenant farmer and the landowner), choosing low-yield but low-risk crop varieties, temporary rural-urban migration to diversity sources of income, or diversifying geographically through marriage of family members into families located in other villages (or regions, or even countries).

One of the ways that a family can ensure that they diversify geographically is for parents to arrange marriages for their children. Late last year, Marginal Revolution pointed me to this interesting paper (PDF) by Gabriela Rubio (University of California, Merced), and I've been meaning to write about it for a while. Rubio uses data from the Indonesian Family Life Survey (IFLS) to investigate whether improved agricultural outcomes have reduced the need for arranged-marriage-as-insurance, and have led to the observed decline in arranged marriage in Indonesia (and in many other countries, though Rubio notes that India, Pakistan and Bangladesh are exceptions). From the paper:

The goal of this paper is to understand the main driver(s) of the transition by proposing and testing empirically a model of marital choices. I first show that this transition away from arranged marriages in favor of self-choice or “love” marriages is correlated with increases in education, formal employment, urbanization, and declines in agriculture. These trends are common in all the countries where micro-data is available, suggesting that despite having different institutions at work, there is a fundamental economic explanation behind these changes in marriage institutions.

Based on these patterns, I build a simple model of marriage choice. I assume that arranged marriages serve as a form of informal insurance (as suggested in the literature of sociology, anthropology and economics, e.g. Rosenzweig and Stark (1989)) whereas other marriages (outside one’s networks) do not...

The model predicts that arranged marriages disappear when the net benefits of the insurance arrangement decrease relative to the (unconstrained) returns outside of the social network. When this is the case, parents invest in more education for the child, effectively increasing her outside option and, thus, the probability that she will reject the arranged marriage.

Rubio first demonstrates that arranged marriage acts as a form of (imperfect) insurance. She then uses the progressive introduction of the Green Revolution across Indonesia from the 1960s to the 1980s as a quasi-experiment, to test her theory about the impact on arranged marriage. She finds:

...that the Green Revolution increased returns to schooling by an additional 2.1% to 4.7% per additional year of schooling, it increased mean income of agricultural households, and importantly, it decreased their income variance by 8.1% and 8.3%, respectively.

Importantly, because the income variance decreased, that made insurance less necessary, which in turn led to the main results:

As predicted, the Green Revolution resulted in a decline of 9 to 20 percentage points in the probability of having an arranged marriages [sic] for the cohort exposed to the Green Revolution, and in an increase in education of 0.3 to 0.5 years of schooling for the same cohort.

The results are robust to various alternative specifications that Rubio tries. Which may lead us to conclude that the Green Revolution conquered arranged marriage, leaving love to take over.

However, it does leave one important question unanswered - what is so different about India, Pakistan and Bangladesh? They've had similar increases in agricultural incomes to Indonesia (and other countries that Rubio identifies as having declining rates of arranged marriage), and they've had a reduction in variability of incomes as well due to the Green Revolution. So the need for arranged-marriage-as-insurance is lower in these countries too, and yet arranged marriage persists. Are South Asians simply more intent on maintaining marriage traditions than Indonesians, do they use arranged marriage to signal their group affiliations and maintain social capital, or are they much more risk averse (such that insurance is still necessary even in the wake of improved incomes)? These are questions to be answered in future research.