(credit: Gerd Altmann)

More compensation!

Would the world be a better place if we found (and made) it easier to compensate others?

It’s a beautiful Saturday and you’re invited to a barbecue. The hosts have a reputation for ensuring memorable occasions, with superb food and eye-catching decorations in the garden. In short, they will, as always, have put in a lot of effort. It’s the kind of event for which you’d actually pay good money. Yet you don’t: you will not arrive at the garden party, informing your friends that you and your spouse have just transferred £70 to their account. You will instead take three nice bottles of wine and a bunch of flowers.

We seem to make a strong distinction between our interactions in the market domain and those in the social domain. In one we pay money in return for goods and services, while in the other we either do stuff for free — like refereeing a football game at our children’s school or helping out a colleague fixing her car — or we reciprocate in kind, rather than at market rates. And never the twain shall meet. Or should they?

I was reminded of this when I read an intriguing blogpost by economist Bryan Caplan, in which he wonders why not a single politician has yet proposed the simplest possible solution to Brexit: let the UK buy its way out of the EU. After all, there is already the financial settlement, colloquially referred to as the divorce bill — the money the UK owes to settle its obligations as an EU member. Estimated at around £36 billion (€42 billion, $47 billion), it covers things like commitments to expenditure beyond the exit date and liabilities like pensions for the British fonctionnaires. Now the key reason why the current UK-EU withdrawal agreement has been rejected by the British MPs three times is the so-called backstop — the protocol that ensures an open border between the republic of Ireland and Northern Ireland, in accordance with the Good Friday agreement. So why could the UK not, for example, ask the EU, “how much to remove the backstop from the withdrawal agreement?”

A bag of money for your backstop (image: Marco Verch CC BY)

Does the backstop have a price — for either side? That is, would the EU be willing to abandon the backstop go in return for suitable compensation from the UK, or would the UK be willing to accept it if the EU put money on the table? In a sense, the backstop is in the ‘social’ domain, but between countries instead of between people. Direct cash transfers (the ‘market’ domain) between countries to settle a disagreement outside the purely financial domain are very uncommon, if not non-existent. But that in itself is not enough reason to dismiss it.

As Prof. Caplan says: “If this were any normal business deal, this straightforward path would be on the tip of every Brexiteer’s tongue.” For example, if you need a certain shipment delivered tomorrow rather than on the normal 3-day schedule, offering to pay more can usually get it rushed through. But of course, Prof. Caplan also knows that politics is not like business. Whoever is the next British prime minister, he is not even remotely likely to consider the suggested approach. Caplan ascribes this unwillingness to foolish pride (“we’re not selling out!”) and wishful thinking (“of course, they will agree to our demands”).

Compensation which crosses the boundary between the social and the market domains is not that uncommon, though. Alongside obvious compensation for material harm, some countries have legal provisions for the compensation of immaterial losses, i.e. that do not directly affect the victim’s economic situation. In Belgium these are known as moral losses (e.g. loss of enjoyment, as when the victim is unable to perform certain pleasurable activities, or affective damage, the sorrow and pain over the death or serious injury of a loved one).

But this is still post hoc compensation, offering amends for a loss already incurred. What of truly negotiated transactions? At the end of last week, The Times reported on the use of non-disclosure agreements (NDAs) in a case of alleged sexual assault and sexual harassment. Two women received substantial financial sums in an out-of-court settlement in which they also withdrew their claims and signed an NDA. Arguably, part of the compensation could well relate to the moral loss the women would have suffered at the hands of the alleged attacker. But another part is certainly related to not taking matters to an employment tribunal: it shows what it was worth for the accused not to be taken to court, and what it was worth for the women to abandon the case and not talk to the media. (One can wonder whether NDAs are appropriate in cases like this, or even whether there is a fundamental difference between this kind of situation and blackmail, but that is a different discussion. Here, we are talking about voluntary transactions in which one party compensates another party for (not) acting in a certain way.)

Could negotiated compensation along these lines be useful in a different context, say in households? These are interesting collaborative entities, with lots of apparently uncompensated, voluntary effort, in particular in the shape of chores. They’re not something one does for pleasure, and yet they get done. The mechanism is often one based on an agreed, more or less equitable division of labour (you fill the dishwasher, I put out the trash). All household members put in effort that, in aggregate, serves the common good, so this makes specific compensation unnecessary. (Pocket money for children is mostly unconditional, so it is not really compensation either.)

But there are many other situations in a household where one person gains, with the burden falling on another one. Imagine, for example, one spouse accompanying the other to a work event, while they’d much rather stay home and read a book, instead of making small talk with strangers all evening. Or a parent taxiing, week after week, one of the children to karate while they’d much rather be watching live football, only because Junior cannot be bothered to fix the leaky tire on her bike.

Maybe we assume too readily that such action form part of the implicit social contract in a household: it’s the kind of thing we just do for each other, fuelled by intrinsic motivation. But what can we truly, unconditionally expect from others in our household? This is a question that rarely gets asked, or even considered.

Would you happily accompany your spouse to this office party? (image: Split The Kipper CC BY)

Perhaps we believe that overall reciprocity should take care of it (“you accompany me to my work do, I will come with you next time you visit your parents”). The trouble is that, even if that were the case (which is by no means necessarily so), in the moment itself the future reward may seem too vague and too distant to outweigh the sacrifice that is being made. Sometimes it can feel as if that sacrifice is not valued by the beneficiary, and as if one party is taken for granted by the other.

Of course, in a household, financial compensation is unlikely to be the right approach. Paying your spouse to join you at your employer’s Christmas gala seems, well, weird. But there is an implicit market in households where favours, chores and more generally time and effort can be traded. It is perfectly possible to agree on a suitable compensation for the person making the sacrifice.

And the beauty, at least in some situations, is that it can clearly work both ways. What would it take for one spouse to accompany the other? Or alternatively, what would it take for the other spouse to go to the work do on their own? Even in the case of the lazy teenager, it is reasonable that the parent would be prepared to offer something in return for not feeling morally obliged to play taxi.

If you feel that bargaining and offering compensation in the household still feel a bit improper, consider the remarkable intangible benefit it could produce. In a conventional setup, using the work do one last time, there will always be one miserable, maybe even resentful spouse: either the one forced to make a solo appearance and cook up some story why they are on their own, or the one that is there under moral duress. With agreed compensation, no such aggro: it’d be a pleasure to fabricate a reason why the other half could not make it, or it’d be a joy to spend time chitchatting to your spouse’s colleagues all evening. No long faces and regrets the days after.

It may not work in international politics, but a bit of diplomatically arranged compensation can certainly contribute to a more efficient and more pleasant household.

Originally published at http://koenfucius.wordpress.com on July 12, 2019.

Thank you for reading this post — I hope you enjoyed it. Please do share it far and wide — there are handy Twitter and Facebook buttons nearby, and you can click here to share it via LinkedIn, or simply copy and paste this link. See all my other posts (I publish one every week) here. Thanks!

Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store