Do consumer s tastes differ final 1.7. - HEC

G.S. Becker: Accounting for Tastes 15
D O C ONSUMER’ S T ASTES D IFFER?
Becker (1998) introduces an approach, which includes “soft values” like leisure for example. As he is
using a rather abstract approach, he does not really apply a concrete sample, but mainly refers to a
household in an economy.
Contrary to most other authors, Becker (1998) supposes that consumption behaviour has only little to
do with basic biological needs for food, drink, shelter and some recreation. He highlights aspects like
childhood and other experiences, social interaction, and cultural influences.
His view reflects the aim to establish a link between two ways of discussing demand: economic or
political and sociological or anthropological. The first often neglects the structure of preferences; the
second does not use an efficient analytical approach.
To allow a broader approach, Becker (1998) includes two new variables for analysing preferences:
P: personal capital
including the relevant past consumption and other personal experiences
effecting current and future utilities
S: social capital
integrating the influence of past actions by peers and others in an
individual’s social network and control system.
The introduction of the above variables changes the utility function, as it not only depends on the
goods consumed but also on the stock of personal and social capital at that moment. The utility
function itself is time-independent, thus being a stable function over time of the goods consumed and
of the capital stocks. As a consequence, the stability of the utility function is mainly due to the
inclusion of past experiences and social influences.
Hereby Becker (1998) has created a revised utility function, which enhances the power of stable
preferences and utility maximisation as it significantly explains a wide range of behaviour. Utility does
not directly depend on specific goods and consumer capital stocks, but on the household’s objects of
choice, called commodities – such as health, social standing and reputation, and pleasures of the
senses – produced by themselves. Consequently, the variables in this utility function do not purely
consist of ordinary goods, but additionally of advertisements, education, and other determinants of
preferences normally not considered as “goods“.
Households will therefore maximise a utility function of commodities. These commodities that they
produce themselves are not evaluated by the market price, but by a “shadow price”, the cost of
production. These costs include the quantity of the market good used to produce the commodity, the
person’s own time input, and other input-output coefficients. As these numerous and varied
determinants describe the shadow price, prices do take subtle forms.
Another difference to usual models is the definition of a household’s income. Contrary to other
approaches, Becker does not use the real income which is the money income deflated by an index of
the prices of market goods. Instead, he uses a household’s full income, representing the maximum
money income it could achieve by an appropriate allocation of the given prices of commodities. As full
income and commodities depend on various factors, a household’s income can take refined forms.
When considering rich and poor, black and white, less and more educated persons, persons living in
countries with totally different traditions and their different utility functions, Becker uses the approach
that the differences are due to subutility functions which are not similar due to influences of childhood
and other experiences. Their extended utility functions, however, are regarded as similar. In order to
analyze and explain behaviour in a productive way, the extended utility functions are used in the
model and are considered as stable.
15 This section summarizes Becker, G.S., Accounting for tastes, Harvard University Press paperback edition, 1998
B EKE T INNEBERG 12
19 MARCH 2003