Coase’s “Nature of the Firm” on Polyamory

[1a3orn]

It occurred to me that Coase’s views on The Nature of the Firm might help explain why polyamory in its modern form is not particularly common or popular.

That sentence might be enough for you to grok what I’m getting at, and honestly that’s the form in which the thought first came to be, but nevertheless let me try to explain what I mean.

Coase’s original essay—and the whole body of thought proceeding from it—seeks to answer why coorporations /​ firms emerge. That is, it seeks to ask where people are hired for indefinite periods of time, for less-precisely-defined work rather than contracted for definite amounts of time, for precisely-defined work. If you believe in a strong version of efficiency of markets, you might expect it to almost always be cheaper to contract than to hire, because the allocation of resources by a market should be more efficient than the allocation of resources within a non-market organization. Why wouldn’t my software company just hire a contractor for everything they needed to be done, rather than relying on me, a non-expert in many things they would like me to do?

The answer, of course, is that there are transaction costs to using the market. There’s a cost to searching for and finding a trustworthy contractor, which is avoided by keeping me around. There’s the cost of a stronger asymmetry of information and asymmetry of benefit in the case of the contractor, which makes me a little more trustworthy because I’m going to be stuck with the code I write for a longer period of time. And so on and so forth.

Polyamory seems like an attempt to unbundle a group of frequently-bundled relationship goods in a way analogous to how contracting different workers can be an attempt to unbundle a group of frequently-bundled commercial goods. Vis, in polyamory you frequently unbundle from each other the following:

- Sexual satisfaction

- Intellectual companionship

- Long-term companionship and dependency

- Childbearing and rearing

Or even decompose these further: i.e., different flavors of sex and different flavors of companionship. But finding someone for each of these involves transaction costs. So you have the costs of searching for and finding trustworthy people in all these roles. And you have the stronger asymmetry of information and of benefit because of the more ephemeral nature of the relationships.

This is really just a rephrase of things I know other people have said about the disadvantages of polyamory. But it was satisfying to me to realize that it looked pretty clearly like an instance of a larger phenomenon.

(x-post)

[A Ray]

Weakly positive on this one overall. I like Coase’s theory of the firm, and like making analogies with it to other things. I don’t think this application felt like it quite worked to me, and trying to write up why.

One thing is I think feels off is an incomplete understanding of the Coase paper. What I think the article gets correct: Coase looks at the difference between markets (economists preferred efficient mechanism) and firms /​ corporation, and observes that transaction costs (for people these would be contracts, but in general all transaction costs are included) are avoided in firms. What I think it misses: A primary question explored in the paper is what factors govern the size of firms, and this leads to a mechanistic model that the transaction costs internal to the firm increase with the size of the firm until they reach a limit of the same as transaction costs for the open market (and thus the expected maximum efficient size of a non-monopoly firm). A second, smaller, missed point I think is that the price mechanism works for transactions outside the firm, but does not for transactions inside the firm.

Given these, I think the metaphor presented here seems incomplete. It’s drawing connections to some of the parts of the paper, but not all of the central parts, and not enough to connect to the central question of size.

I’m confused exactly what parts of the metaphor map to the paper’s concept of market and firm. Is monogamy the market, since it doesn’t require high-order coordination? Is polyamory the market since everyone can be a free-ish actor in an unbundled way? Is monogamy the firm since it’s not using price-like mechanisms to negotiate individual unbundled goods? Is polyamory the firm since its subject to the transaction cost scaling limit of size?

I do think that it seems to use the ‘transaction costs matter’ pretty solidly from the paper, so there is that bit.

I don’t really have much I can say about the polyamory bits outside of the economics bits.

[David Udell]

This is a fantastic piece of economic reasoning applied to a not-flagged-as-economics puzzle! As the post says, a lot of its content is floating out there on the internet somewhere: the draw here is putting all those scattered insights together under their common theory of the firm and transaction costs framework. In doing so, it explicitly hooked up two parts of my world model that had previously remained separate, because they weren’t obviously connected.

[Davidmanheim]

As I have now written in a below comment, see my 2016 Ribbonfarm post about this.

[Vanessa Kosoy]

Obviously finding multiple lovers is more work than finding one lover. But, this doesn’t explain monogamy. Monogamy is not just “one lover is enough”, it is “you are forbidden to take multiple lovers (even if they are easily available)”. I don’t think the latter is explainable by any sort of efficiency argument, it’s just a question of jealousy and/​or cultural convention.

And, polyamory doesn’t have to be “ephemeral”. How long you relationships last and how many relationships you have are a priori independent variables

Another way to look it, most people have many relationships, if platonic relationships are included. The difference between monogamy and polyamory is not how many people you have in your life, it’s are you allowed to kiss /​ have sex with more than one of them.

[TekhneMakre]

This seems like a bait-and-switch re/​ sex /​ physical affection, vs. the broader social bonds involved in sex etc.

Maybe fears of sex leading to bonding leading to reallocation of lifeforce are unfounded, are unfair, are better made open to explicit negotiation /​ contracts; but it’s not a non-issue.

[Vanessa Kosoy]

I’m not sure I follow you, but here’s my steelman: Alice and Bob are in a prisoner’s dilemma type of game. If Bob takes Carol as a lover while Alice doesn’t have anyone else, Bob will be better off and Alice will be worse off, because Bob is getting affection from two people while Alice is only getting part of Bob’s affection. If Bob takes Carol as a lover and Alice takes David as a lover, then both of them are worse-off: naively each gets 50% of the affection of each of 2 people, but this amounts to less than 100% of the affection of 1 person because of “transaction cost”. So, monogamy is a norm that enforces cooperation to mutual benefit.

I don’t think that’s really how it works, but at least I see the logic in the argument.

[TekhneMakre]

I’m talking about lifeforce generally, not just affection. I guess I’m reacting to your two statements:

>… it’s just a question of jealousy and/​or cultural convention.

>The difference between monogamy and polyamory is not how many people you have in your life, it’s are you allowed to kiss /​ have sex with more than one of them.

These seem to ignore the concern of the jealous partner: that sex involves (causes and is caused by) a kind of social bond that’s stronger than bonds without sex. It’s less “I’m worried because I’m horny and my husband won’t have sex with me” and more “I’m worried because my husband isn’t excited about growing together with me because he’s into his younger girlfriend”.

Part of it could be: people who have sex form a bond aimed at “deep unity /​ ‘infinite’ trust” (evolved for childrearing).

There’s multiple intersecting things here, and I don’t see them clearly, so I can’t expose my cruxes yet. Some of them might not be concerning, upon more reflection. Some might be revealed to be delusionally zero-sum thinking. “Deep unity” has some zero-sum components; “save your husband from the fire first (instead of other people)”. It also has some non-zero sum components: “deep unity” as a disposition towards growth is nonlinearly good when two people are doing it with each other, so it makes sense to calibrate “investments” to match the actual “co-investments”.

[Vanessa Kosoy]

There are two key assumptions here: (i) sex automatically implies an especially deep bond, deeper than even the deepest platonic friendship and (ii) it is nearly always suboptimal to have more than one such deep bond. Assumption (i) is extremely dubious given that one-night stands are fairly common. Assumption (ii) is harder to disprove, but personally I am skeptical about it. Yes, there can be increasing returns from investing in a relationship with one person, but there can also be diminishing returns (for example because different relationships have complementary benefits). So, while this type of argument carries some weight, I doubt it can justify monogamy on purely pragmatic grounds.

[Viliam]

Assumption (i) is extremely dubious given that one-night stands are fairly common.

I think it is possible that humans are bimodal about this. For some, sex is a strongly emotional, for others not at all. (Or maybe even for the same person it depends on circumstances.)

And the conservative rules about chastity are partially about pregnancy and diseases, but also partially to prevent people who create deep bonds from choosing partners who cannot reciprocate.

[jmh]

I’m not sure Coase, here, is a good understanding of specialization at the level you mention in a lot of cases, e.g., specialist programmer in, say, search functions and then one for, say, sort functions rather than the programmer that is a generalist in a particular language. I think Smith’s division of labor and extent of the market might be more appropriate here.

It also seems that the one could view the firm very much as a polygamous structure because it includes many people filling similar roles in their relationship to the central contracting party (the firm).

[TekhneMakre]

>The answer, of course, is that there are transaction costs to using the market.

This doesn’t seem like the whole answer, unless we take a trivially large notion of “transaction”.

There’s computations that just aren’t shaped modularly, or least you don’t know yet how to make them modular. E.g. you can’t make a good chess playing committee by hiring a Knight expert, a Bishop expert, a Pawn expert, …. E.g. some (most? ~all?) people can’t have sex without forming bonds of expected behavior.

[1a3orn]

Yeah I definitely wouldn’t want to say that this framing is the whole answer—just that I found it seemed interesting /​ suggestive /​ productive of interesting analysis. To be clear: I’m 100% unsure of just what I think.

But I like that chess analogy a lot. You can’t hire a let expert and a const expert to write your JS for you.

There’s probably a useful sense in which the bundle of related romantic-relationship-benefits are difficult to disentangle because of human psychology (which your framing leans on?), which in turn occurs because of evolutionary history, but also a sense in which the bundle of related romantic-relationship-benefits are difficult to disentangle because of functional interconnectedness (which is still the case regardless of human psychology, if we were to magically remove jealousy). I’m not sure.

[TekhneMakre]

Yeah. I don’t think those two things (evolved psych priors, and functional connections) are necessarily sensibly separated, even in the limit of freely considered self-modification. Like, it’s not a coincidence that the bonds formed; maybe childrearing was the longest time scale selective pressure towards interpersonal goal alignment. That sort of cooperation is a convergent instrumental goal of life in general (in particular, of childrearing, and of life in modernity). Not obvious that we’d want to draw the boundary of what counts as “our mind updating” to exclude “evolution discovered that faith in a relationship is useful for key goals”.

[Kenny]

I do think a lot of it comes from evolutionary imperatives. Sex came before tribes. Platonic friendships come and go but we don’t really feel emotionally hurt from them. Polyamory is a mixture of those two main types of interpersonal relationships. For polyamory to become the default, the very foundation of society has to change for children to grow up and develop a very different set of normative behaviors. Of course other aspects of life would change along with it such as who makes money for the family, the institutions that people develop their world view and grow up in such as school and workplace, etc. The current structure of our societal institutions came out of those ancient paradigms of interpersonal relationships as the distinct concept of school and workplace has existed in almost identical forms for a very long time.

[Vanessa Kosoy]

Platonic friendships come and go but we don’t really feel emotionally hurt from them.

Wow, that’s so not my experience. I get hurt by those a lot.

[Kenny]

Your experience is certainly valid. I was making a generalization in comparison to relationship with a sexual reproduction partner.

[ChristianKl]

Monogamy is not a human universal among hunter gatherer tribes. It’s practiced in some tribes and not in others. Evolution allowed humans to be very flexible about the kind of arragements that are possible.

[Kenny]

I was referring to the fact that the ancestors of sapiens probably didn’t live in tribes but have developed sexual reproduction. It is also possible that the ability to feel emotions only developed after we have adopted the tribal lifestyle.

[ajc586]

A downside of polyamorous relationships not mentioned here is that it removes guarantees of availability, which for many is an important (the most important?) value component of a long-term relationship.

For example, consider a couple X and Y. Let’s say X has a bad day at work. X knows that, when they get home, Y will be there to provide emotional support. This provides benefit for X in two ways—X knows that Y will be there for support later even while the bad day is playing out, and X additionally benefits from the actual support from Y once home. Y feels happy to be there for X. End result: everyone is OK.

Or, let’s suppose X is sick. They know that, if they need care, Y can be there for them. Yes, Y may have other obligations that need to be pushed aside (e.g. work) but it’s generally accepted for Y to take time off work for this kind of reason.

By contrast, in a polyamorous relationship between X, Y and Z, these guarantees no longer hold. X may have a bad day at work, but maybe Z has had an even worse day (or claims to). The result is that Y feels conflicted (but ends up supporting Z over X), and X feels unsupported. End result: 2 out of the 3 people are not OK.

There will always be (at least the risk of) competition for availability in a polyamorous relationship. This is a failure mode not present in the same way in monogamous relationships.

Yes, in polyamorous relationships one can unbundle sexual attraction, intellectual attraction, long-term companionship and childrearing to some degree and thus optimize those individually. But many in a long-term monogamous relationship already feel they are close (enough) to optimal on each of those dimensions already, so would not benefit from unbundling.

[Slider]

The benefit comes from clarity of priority. Polyamorousness per se does not preclude to be clear about priorities. If you know you are the 5th priority of 6 people then you know your support is unreliable. If you have even one person that you are the number one priority then you know you do have the support reliability. Whether those lesser priorities are work or other people is not that relevant.

And monogamous relationship does not prevent work from being a higher priority than the person. And not all needs are guaranteed to be in the same level compared to non-relationship priorities. Not skipping work for horniness but yes skipping work for health care.

Now there might be dynamics where being ranked creates negative feelings. And there can be drama from going from “X>Y” to “X<Y”. But how many people are involved does not affect that much how much pain this priorization causes (or whether undefined “plausible evenness” provides a more general positive vibe than emergency triage drags it down).

[ajc586]

(Apologies if in writing this response I have missed your point.)

I don’t believe that in most polyamorous relationships there are clear (i.e. fixed) priorities. I think most people will appreciate that priorities will change depending on the situation. The point I was trying to make was that this kind of ‘emotional availability uncertainty’ is specific to polyamorous relationships. Yes work can be a higher priority than the person in some relationships or at some times, but this is similar regardless of relationship type. The specific failure mode in polyamorous relationships that I was describing was that—even assuming all parties act in good faith and act with the best intentions—X loses the guarantee of Y’s emotional availability, because Y also feels a duty to respond to Z’s needs (or Y’s perception of Z’s needs). (Repeat for all permutations of X, Y and Z.)

In a monogamous relationship there is no need for any emotional prioritization between multiple people. This failure mode is totally absent. Yes, the other factors like work are still in there to get in the way, same as in a poly relationship.

It may be that this ‘emotional availability guarantee’ is not that important to some people, in which case they can achieve something asymptotically equivalent by having lots of partners in a poly relationship, and then presume that at least one of them will probably be emotionally available at any given time.

[Slider]

There is also the edge case when emotional availabilty to one person does not interfere to be emotionally available to another person. That is, Y is responding to Z and X needs stuff then XYZ have a emodwelling pit. Priorization becomes redundant once again.

[Davidmanheim]

There’s nothing fundamental about polyamory that precludes guarantees of availability. You can certainly have 1 (or more) primary partners who you agree to be more closely bound to. And in fact, many poly people have exactly this, a primary “marriage” along with polyamory.

[johnswentworth]

I only read the title and the first two paragraphs, which basically tell the story. I love it.

This is exactly the sort of mental move that the framing exercises are trying to teach.

[Davidmanheim]

Interesting post, I wish I had seen it initially.

It makes a point closely related to something I wrote on Ribbonfarm about corporate structure (and polyamory) a few years earlier:

As an aside, a question that initially bothered me about polyamory was: why isn’t polyamory more widespread, especially among people who aren’t religious or traditional? Yes, there are some scale limits. At the very least, there is a tradeoff between the frequency you can see someone and the number of people involved, but I’m sure there are people who would be happy to juggle 5 or 10 partners. Why isn’t it more common? Why don’t adults keep pivoting, and why is polygamy now relatively rare? Traditional marriage was a good tradeoff for social designers who wanted legible structures, but it’s less obvious why it’s useful for the people. Given that, it’s confusing why so many people nowadays think there is a single “correct” family structure.

I’ll leave that as a question for now, because it should answer itself later, once we figure out why companies don’t stay agile as they scale. The parallel to companies, though, is clear; what social structures work, for what purposes, and why?
<snip half of the (very long) post>
(This also finally answers the questions about polyamory; typical structures are comfortable, and the simplest structure that allows for a relationship is a dyad.)

[Kevin Wang]

This post doesn’t really say anything more than having more partners is harder; dressed in more complicated language and loosely related economic theory. Am I missing something?

[skot523]

The answer, of course, is that there are transaction costs to using the market. There’s a cost to searching for and finding a trustworthy contractor, which is avoided by keeping me around.

With the internet and fully online on boarding, could be a good way to explain the rise of contracting gig jobs in recent years

[Viliam]

No idea about American laws, but in my country it seems the main motivation is cheating on taxes, i.e. the money you save by cheating on taxes exceeds the transaction costs on the market, and because everyone around seems to be doing it, so it seems safe to do.

I call it “cheating”, because the specific laws were made with an intent to incentivize starting a small company, as opposed to being an employee. What actually happened is employers pushing job seekers into becoming technically-not-employees, so we get a growing group of people who de facto work as employees (except with none of the labor law protections), but de jure are entrepreneurs (and bear legal responsibility for the tax cheating). So it is win/​win for the employer, mixed outcome for the employee. Also, the pre-tax numbers for non-employees are bigger than the post-tax numbers for employees, and although your System 2 knows that you need to adjust for taxes, the System 1 remains impressed.

[CronoDAS]

Let me guess: you’re from Poland?

[Viliam]

Slovakia, but I guess the situation is similar.

[TAG]

Like ir35?

https://​​www.gov.uk/​​guidance/​​understanding-off-payroll-working-ir35

[jmh]

That misses the point about transaction costs driving the emergence of the firm in Coase’s argument. As I recall the key transaction cost was was not really search related but that for 100 people to work together with some form of legal agreement each person must contract with 99 other people. Once the firm exists then the majority of those contracts go away and the firm contracts with 100 people and the 100 workers have no contract with one another, just the firm.

[Kenny]

There just aren’t enough people in the market for specialization. If you only find one person for a specific task and need, you both have that specific need satisfied for each other, but both of you need to seek out others for your other needs. If you go to the extreme of depersonalization and say someone specialize in sex only, like sex workers, they can only serve so many customers. Then you have people who specialize in all the other stuff you’ve mentioned, intellectual companionship, long term relationship, child rearing. Maybe you can see how the logistics just breaks down based on our basic human conditions, especially the emotional aspect of each profession.

Relationships aren’t like jobs where you are paid in money for a specific service. Relationships are about spending time together doing whatever you happen to like to do together. Sometimes you want to have sex, sometimes you want to do watch TV, sometimes you want to talk about stuff. Maybe if we are all robots then people won’t feel jealous of others in a polyamorous relationship based on the services they provide. Maybe you can just pay people to do those things for you without having to be in a amorous relationship with them if you have the money to do so.

[RedMan]

I really like the analogy in the OP, but no mention of paternity assurance or anxiety about infectious disease in the OP is confusing. The first, and to a lesser extent, the second seem to be some the primary drivers for long term monogamy.

I assert that now that paternity tests are available, and it’s theoretically possible for the state to easily care for a new human, monogamy in the form of marital restrictions on women’s sexuality, and obligatory paternal investment into children are probably both functionally obsolete, but persist because culture tends to be sticky.

Personally, I found that sexual jealousy is pointless, though I prefer deep longer term bonding instead of short term sexual relationships, someone having STIs (all of which are preventable/​treatable) is an indication of irresponsibility that probably means that a relationship with me won’t last, and for entirely emotional reasons, and I would attempt to raise/​be involved with any child who is genetically mine (but will avoid a child of a partner which is not). Unbundling the other stuff massively improved my life, I have great platonic relationships with people I’m (glad to) not having sex with anymore, and great sexual relationships with people with whom I wouldn’t be able to live with and don’t share any hobbies/​other interests. I recommend it.

I pay my taxes, so child poverty and poor education shouldn’t be a thing in my community (even though it is)