Wednesday, November 23, 2005

Economics of Identity

by Tom Bozzo

After seeing a reference on the Freakonomics blog, I was skimming through George Akerlof and Rachel Kranton's "Economics and Identity" from the August 2000 Quarterly Journal of Economics. (Kranton arrived at Maryland towards the end of my time in College Park.) Its contribution is formalizing a rational choice model in which there are consumption externalities of the sort Robert Frank is concerned with in Luxury Fever — see also Barkley Rosser at MaxSpeak — and the (marginal) utilities of actions depend on social group identities.

At first glance, the main substantive limitation looks to be that identity is treated as exogenous to the analysis, whereas there are plenty of interesting situations in which identity is determined simultaneously with some "traditional" consumption or production decisions. From the book club reading, I'm inclined to put into the category of serious futurism (vs. possibly ironic social commentary) the likelihood that technology will make identity much more malleable going forward.

Non-substantively, I'm not sure what it says about me that when I read this passage:
Gender, a universally familiar aspect of identity, illustrates. There are two abstract social categories, ‘‘man’’ and ‘‘woman.’’ These categories are associated with different ideal physical attributes and prescribed behaviors. Everyone in the population is assigned a gender category, as either a ‘‘man’’ or a ‘‘woman.’’ Following the behavioral prescriptions for one’s gender affirms one’s self-image, or identity, as a ‘‘man’’ or as a ‘‘woman.’’
I was reminded of this Robyn Hitchcock lyric (from "Uncorrected Personality Traits"):
Even Marilyn Monroe was a man
But this tends to get overlooked
By our overweight, mother-fixated, sexist media;
then secondarily of a project where the opposing expert, a male economics professor at a large public university, wrote a paper that comprehensively substituted the term "manhours" for the gender-neutral "workhours" I'd previously used.
I haven't read this particular Akerlof, but I'm working my way through "An Economic Theorist's Book of Tales" and the more severe limitation of his models attempting to incorporate "sociolological" phenomena is a philosophical one: by sticking identity in the utility function, you assume that it can be traded off against other things at some price. For example, he writes (in chapter 5, "A Theory of Social Custom of which unemployment is one consequence") that someone doesn't want to be just rich, they want to be rich and famous. But they want to be famous only insofar as this can be translated into a wealth equivalent (that is, more money would make them just as happy as less money and more fame). Yet to the average person, to claim that someone wants to be rich and famous means that there is something about widespread recognition that is not understandable in purely monetary forms. A sociologist would, I think, claim that fame cannot be purely traded off against money. The assumption of comparability is one I'm comfortable with when arguing with sociology majors, less comfortable with when arguing with economics majors.

It's cold in Madison.
In this paper, my initial reading was that the identity variable was motivated as a utility function parameter, though the framework is so general that isn't necessary. I think there are at least some cases in which identity *should* be considered a choice variable. Particularly in the case of some of the adverse consumption interactions a la Frank, there should be margins where people refuse to be bankrupted to maintain some quasi-identity.

Also, while neoclassical utilitarianism does effectively reduce every utility-generating activity to monetary terms, the actual trade-offs may be with other utility-producing activities that may not so implausible.

As for the temp, I agree -- though I understand it's relatively cold in the mid-Atlantic, too. (NPR was reporting sub-freezing conditions in D.C. this morning. Poor dears.) Probably not like the arctic blasts along Lake Michigan yesterday, though.
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