October 29, 2005

Economics and biology: clearing in mating markets

There is a nice paper by Peter Hammerstein and Edward H. Hagen in Trends in Ecology and Evolution (The second wave of evolutionary economics in biology; € required) about how economists and biologists are borrowing from each other to examine problems in similar ways. The authors discuss several interesting topics. For example, they explain how both formal education and the peacock's tail seem to act as handicaps that signal quality -- worker productivity and male fitness, respectively; why people are so bad at estimating certain kinds of probabilities; or the current search for the evolutionary roots of our sense of fairness.

Hammerstein and Hagen discuss human and non-human markets. They show how market principles apply to the relationship between cleaner fish and their customers:

The relationship between cleaner fish and their customers, for example, demonstrates the economic principle of monopolistic competition: buyers with few alternative sources of supply will have less advantageous transactions than will those who can shop around. Cleaners live in coral reefs and have customers from the immediate neighborhood and the open sea. Local customers, for whom long-distance moves are costly, are cleaned less well than are long-range travelers, who can exert partner choice.
And they argue that mating markets are an example of market failure (and an example of neoclassical economics failure, a judgment that I attribute to the personal tastes of Hammerstein and Hagen):

In many species, the supply of sperm in a population is significantly larger than that needed to fertilize all the eggs. The law of supply and demand therefore does not apply, but why not? First, a neoclassical economist would expect individuals to prefer entering the market on the side with the scarce good, here, eggs. Yet, males and females appear in approximately equal numbers in most species. If biology did not already have sex ratio theory, the failure of our economist's expectation would have led biologists to develop it. Second, our economist would suggest that, when supply exceeds demand, a female would ‘sell’ her eggs for sperm plus additional ‘commodities’, such as a nuptial gift or paternal care. However, only some species offer such commodities (e.g. male roadrunners offer lizards to females, apparently in exchange for sex). The reason is that, unlike trade in contemporary human market economies, animal trade is not subject to enforceable contracts. There are no police to arrest males that fail to pay what they promised for the eggs that they fertilize. Contrary to the expectation of ‘traditional’ neoclassical economics, biological markets will frequently not clear (i.e. supply and demand will not equalize).
I am not convinced. Aren't females asking for "quality" in males? Females won't let any male fertilize their eggs. They look after a commodity as scarce as eggs -- good genes. They rely on signals of quality that are as expensive as gifts. There are analogous signaling systems in human markets. You are not going to sue a cookie-maker when you do not like the cookies you have just tried. When you try a new cookie you usually rely on brand names, packaging and other signals instead of enforceable contracts.

It seems to me that resource waste and market clearing are not incompatible. There is much waste of sperm in mating markets, just as there is much waste of resources in high-risk human markets with large potential rewards but low success rates.

Thus, maybe mating markets do clear. Eggs are exchanged for high genetic quality; many males go broke because being male is a risky business.

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