1. The Economic Approach
My research uses the economic approach to analyze social issues that range beyond those usually considered by economists. This lecture will describe the approach, and illustrate it with examples drawn from past and current work.
The analysis assumes that individuals maximize welfare as they conceive it, whether they be selfish, altruistic, loyal, spiteful, or masochistic. Their behavior is forward-looking, and it is also consistent over time. In particular, they try as best they can to anticipate the uncertain consequences of their actions. Forward-looking behavior, however, may still be rooted in the past, for the past can exert a long shadow on attitudes and values.
Actions are constrained by income, time, imperfect memory and calculating capacities, and other limited resources, and also by the available opportunities in the economy and elsewhere. These opportunities are largely determined by the private and collective actions of other individuals and organizations.
Different constraints are decisive for different situations, but the most fundamental constraint is limited time. Economic and medical progress have greatly increased length of life, but not the physical flow of time itself, which always restricts every one to twenty-four hours per day. So while goods and services have expanded enormously in rich countries, the total time available to consume has not.
Thus, wants remain unsatisfied in rich countries as well as in poor ones. For while the growing abundance of goods may reduce the value of additional goods, time becomes more valuable as goods become more abundant. Utility maximization is of no relevance in a Utopia where everyone’s needs are fully satisfied, but the constant flow of time makes such a Utopia impossible. These are some of the issues analyzed in Becker , and Linder .
The following sections illustrate the economic approach with four very different subjects. To understand discrimination against minorities, it is necessary to widen preferences to accommodate prejudice and hatred of particular groups. The economic analysis of crime incorporates into rational behavior illegal and other antisocial actions. The human capital approach considers how the productivity of people in market and non-market situations is changed by investments in education, skills, and knowledge. The economic approach to the family interprets marriage, divorce, fertility, and relations among family members through the lens of utility-maximizing forward-looking behavior.
3. Crime and Punishment
I began to think about crime in the 1960s after driving to Columbia University for an oral examination of a student in economic theory. I was late and had to decide quickly whether to put the car in a parking lot or risk getting a ticket for parking illegally on the street. I calculated the likelihood of getting a ticket, the size of the penalty, and the cost of putting the car in a lot. I decided it paid to take the risk and park on the street. (I did not get a ticket.)
As I walked the few blocks to the examination room, it occurred to me that the city authorities had probably gone through a similar analysis. The frequency of their inspection of parked vehicles and the size of the penalty imposed on violators should depend on their estimates of the type of calculations potential violators like me would make. Of course, the first question I put to the hapless student was to work out the optimal behavior of both the offenders and the police, something I had not yet done.
In the 1950s and 1960s intellectual discussions of crime were dominated by the opinion that criminal behavior was caused by mental illness and social oppression, and that criminals were helpless “victims.” A book by a well known psychiatrist was entitled...