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Nobel Prize winner: Becker Part 2 (Becker's model: Discrimination…
Nobel Prize winner: Becker Part 2
Becker's model
Three principles:
II. Equilibrium approach
III. Preferences are stable (but can evolve)
I. Maximizing behavior
-->Focus on efficiency
Applied to
Fertility and family
Crime
Discrimination
Human Capital
Becker's model: Discrimination
Discrimination
: the valuation in the market place of personal characteristics of the worker that are unrelated to worker productivity
--> Becker: taste component (preferences)
Taste component enters utility function (EXAMPLE SLIDE 7/21)
Implication:
discrimination lowers profits, and hence discrimination will disappear in competitive markets.
No need for antidiscrimination laws!
Theory is empirically valid and rich in policy implications.
Becker's model: Discrimination
Relation to Marshall:
The idea that competitive equilibrium is efficient appears in the literature since the time of Marshall.
Relation to Marginalists:
Focus on individual choice behavior and utility maximization
Relation to Adam Smith’s invisible hand:
Focus on efficiency.
Individuals acting in their self-interest further the general goals of society
Becker's model: Discrimination
Becker looked at origins of preferences.
Preferences can change over time through consumption
decisions and choices of lifestyle
E.g. rational habit formation can include addiction
Until then, consumer theory mostly driven by constraints, not by properties of preferences.