March 3, 1998
Neoclassical Economic Approaches
I. Issues of Collective Action
A. Free Rider Problem
B. False Consciousness
II. Neoclassical Economic Agents
A. REM - Example Model
B. IRSEP - Assumptions of Models
I. Issues of Collective Action
A. Free Rider Problem. See Folbre, p. 5. This is the tendency
to let others do the work or take the risks and yet benefit from
this action taken by others. Economists often use this concept
when referring to the provision of a public good, which
once paid for is generally available for all. For example, once
the cost of making and broadcasting weather forecasts has been
met, there is no further cost to providing it to more people.
Another case is national defense, where the cost is in the initial
provision. The question is who should pay for provision of the
public good. This problem does not arise in the case of most goods
and services that are bought and sold for individual consumption,
although it could emerge in any good or service purchased for
consumption by a group of people. Lipsey, Courant, and Purvis
(LCP) give the example of a group of friends renting a videotape.
Who pays for the video and how is the cost of rental distributed?
If one individual pays, the others could be considered to be free
riders. (LCP, pp. 391-2).
Folbre notes that the same could occur with collective action,
and refers to the complexities of collective action (pp. 65-70).
Efforts of time, effort, stress, and finances on the part of some
in an organization may be necessary to achieve gains for the members.
Once achieved, these are available for all, and those who did
not assist in achieving these gains might be considered free riders.
For example, all students may benefit from new forms of financial
assistance that are established as a result of the effort of students
leaders and students who undertake political action.
On way in which a public good can be paid for is by a tax
on all - with provision by the state through the system of taxation.
Charging individuals on the basis of their use is not possible
(national defense, broadcasting), is costly (cost of collection
high - roads), inefficient for allocation (economists' concern
with equalizing marginal costs with marginal benefits), or inequitable
(exclusion of those with little income). In this case, the principles
of taxation come into effect, and the question is what is an equitable
form of tax to pay for the provision of the public good. In the
discussion of social welfare programs and collective
action, these issues become especially important, and are
very relevant in understanding political action. Folbre argues
for greater equity in paying for the costs of social reproduction,
partly by recognizing that some aspects of social reproduction
are like public goods - they should be paid for out of general
taxation and not provided only to those who can pay for them as
private goods and services.
B. False Consciousness. See Folbre, p. 5, 34, 68. This
is a failure to recognize the potential gains from collective
action by the group of which the individual is a part. The concept
of false consciousness comes from the Marxian approach to social
theory. In this approach, false consciousness is a reason for
the difficulty of developing collective action. The concept is
somewhat different than the free rider problem, where people see
the benefits, but do not want to pay the costs; that is, individuals
may be selfish and find it in their best interests to let others
take collective action. In the Marxian approach, the problem is
that people do not see the benefits of a particular set of actions,
or they see different consequences emerging from collective action.
This lack of visions may occur as a result of ideologies
that mask the true nature of the structures in capitalist society.
Marxist analysis contrasts class consciousness with false consciousness.
Class consciousness is the ability of the members of a
social class to see their position within the social structure
and act together to work toward achieving what is in the best
interests of this social class. For members of the working class,
this means organizing collectively to counter the power of the
capitalist class. Not being able to recognize the position of
the class or not being able to act on these interests is false
Folbre's analysis shows that class consciousness may be a slippery
concept. In contemporary society, people may occupy multiple
positions, with different or even contradictory interests,
makes false consciousness problematic. In this situation,
what is class consciousness and what is false consciousness? On
page 68, Folbre gives some examples of interests that might be
considered to demonstrate false consciousness, but really show
how there are different bases for organizing identification and
loyalty. For example, elderly people may attempt to preserve a
particular status quo (perhaps to protect pensions or retirement
savings), even when action to do this may not seem to be in the
best interests of their social class or gender. Working class
people with heterosexual sexual preference may unify across gender
lines against those with a different sexual preference, and not
act in accord with their interests as members of the working class.
II. Neoclassical Economic Agents - REM and IRSEP
A. Rational Economic Man. REM.
While economics certainly
recognizes structure in the form of scarcity and constraint, the
focus of much economic theory is on "rational choices of
self-interested agents" (p. 17). It is these models of rational
behaviour that form the core of neoclassical economics. There
are two parts to the neoclassical economic model, and this may
not always be apparent in Who Pays for the Kids? The first
part is the model of individual behaviour and the second part
is what are the results of the model for groupings larger than
the individual or for the whole society.
1. Model of individual rational choice. These are the microeconomic
models of rational choice by individuals who are attempting
to maximize their own utility or satisfaction through these choices,
as briefly outlined on the first half of p. 18. That is, these
models deal with issues of individual decision-making at the micro
or individual and household level. Such models of individual choice
focus on how people make rational economic decisions in a situation
where there are scarce resources. This approach emerges from the
utilitarian approach of Jeremy Bentham (1748-1832) who coined
the term "utilitarian" and who made the famous
phrase "the greatest happiness for the greatest numbers"
popular. Bentham's idea was that individuals make choices that
increase their utility or happiness, and reduce their pain or
disutility. "Bentham argued that self-interests, properly
understood, are harmonious and that the general welfare is bound
up with personal happiness." (The New Columbia Encyclopedia,
1975). The latter argument is the second part of the individual
rational choice model.
2. Societal Result. The second aspect of the model is the
macroeconomic or the result for society when large
numbers of individuals and enterprises each make rational choices
in their own self-interest. According to the ideal model, the
result of such pursuit of individual self-interest is to produce
the maximum benefit for society as a whole. Here Folbre refers
to the model as eliminating excess profits and unemployment, and
even discrimination (last half of p. 18). Discrimination is eliminated
because those enterprises who do not make the best economic use
of resources are not as efficient as those who do. The less efficient
(the discriminators) cannot offer the product at as low a price
or with as good service as the more efficient (the non-discriminators),
so that the discriminators are driven out of business. This second
part of the model is based on a number of restrictive assumptions
which may or may not come close to describing markets and societies.
3. Example of an Economic Model with Rationality - Choice Concerning Job Hours.
Note. Please obtain the diagrams for this section from the instructor or from the binder on reserve in the Library.
This example is intended to illustrate the method
that is often used in neoclassical economics, a model of choice
within the context of constraint. Following the example is a discussion
of the implications of the model and the assumptions on which
the model is constructed. The model is described in words here
and Figures 1-3 illustrate the construction and workings of the
This example examines how an individual might decide how many
hours to put in at a job each week. Suppose that there is a fixed
wage rate, and there is a choice concerning how many hours the
individual will work during a week. What is the process by which
that individual decides how many hours to work? How many hours
worked does this result in and what is the total pay?
In order to make the decision, a choice has to be made between
two scarce things, time and money. Each extra hour worked means
greater pay, but at the same time the worker gives up some free
time or time that could be spent at other activities. Examining
this choice from the other direction, if the worker wants more
time for other activities, this means reducing the hours worked
at the job with the consequence that total pay is also reduced.
Suppose the wage rate is $10 per hour. One possibility is that
a worker decides to not work at all at a job, and in this case
the pay is $0. At the other end of the spectrum, since time is
limited to 168 hours in the week, the maximum amount of money
that can be earned during the week is 168 x $10 = $1,680. But
this would require working 24 hours a day for seven days a week.
In between this, there are many combinations of allocation of
time and pay.
From the straight line in Figure 1, the pay associated with each
choice of hours of employment can be determined. At the lower
left, with 0 hours worked, pay is $0. The line can be extended
upwards to the right, so that at the top right, total pay is $1,680
when there are 168 hours at the job. More likely, hours worked
are 50 or less per week. When a worker works 20 hours per week,
pay is 20 x $10 = $200 and when 40 hours per week are worked,
pay is 40 x $10 = $400. In Figure 1, call the straight line giving
these various combinations of hours worked and pay, the income
In order to answer the question of how an individual choose the
number of hours worked during a week, it is necessary to think
of the relative value of money and time to the individual. Suppose
the worker is working relatively few hours each week and we ask
the worker how much they would need to be paid to work 1 more
hour? It might be that $5 an hour would be sufficient to induce
the worker to work one more hour. At this point the worker may
be desperate for some money, and if the alternative is idle time,
then it might not take all that much pay to induce the worker
to work an extra hour.
Now, at the other end of the spectrum, suppose the worker working
a lot of hours, say 60 hours a week. How much would you need to
be paid to work one more hour? Perhaps free time has now been
cut so much for this worker, that the worker will only put in
extra hours at the job if paid a lot more. While Figure 2 may
exaggerate the situation, beginning at 60 hours worked, in order
to get the worker to work 10 more hours, the pay must be $40 per
hour. Given a reasonable pay level, by the time the worker works
60 hours, he or she has already received considerable pay for
the week, and free time away from the job is becoming very hard
to get, and for the worker is becoming more valuable.
The idea here is that as a worker puts in more hours at the job,
the value of time for the worker is likely to increase. He or
she will consider it necessary to be paid more for each extra
hour worked. Starting at only a few hours on the job, the employer
need not pay all that much in order to get a worker to put in
more hours - the money is really needed, there are no other alternatives,
and the worker has considerable free time so he or she is willing
to give some free time for not all that much money. But as the
number of hours worked is increased, the worker will need to be
rewarded by higher wages to get them to continue working more
hours. At some point the worker may say it is not worth working
any more hours, or there is danger of physical or mental exhaustion.
At this point, no extra amount of money would induce the worker
to work more hours.
The curved line in Figure 2 demonstrate this set of individual
preferences and it can be called the line of equal preferences.
While the height of the line is arbitrary, the curved nature of
the line is important. At smaller number of hours worked, say
30, extra hours worked can be obtained by the employer by paying
$10 per hour. That is, to get the worker to move from 30 to 40
hours worked per week, the employer must pay $10 per hour, for
a total of (40 - 30) x $10 = $100. As noted above, for the employer
to get 10 more hours work from the worker when the worker is already
working 60 hours requires payment of (70 - 60) x $40 = $400.
There could be several such lines of equal preference that
illustrate the choices or trade-offs that the individual is willing
to make based on his or her preferences and evaluation of the
utility of income and the disutility of extra hours at the job.
At few hours of employment, the individual is willing to sacrifice
considerable time in order to get money, at many hours of employment,
it takes much more money to induce the individual to work more
hours at the job. In principle, it should be possible to measure
the shape of these curves for individuals. It would seem no more
difficult than measuring attitudes, opinions, or many psychological
Figure 3 puts the lines from Figure 1 and Figure 2 together to
show the choice made by the worker. The equilibrium solution shown
is where a worker works 40 hours per week, and if the pay is $10
per hour, total pay for the week is 40 x $10 = $400. The reason
for this solution is as follows. If the hourly pay is fixed at
$10 per hour, the worker will work just enough hours so that the
last hour worked is worth $10 to him or her. That is, the worker
was actually willing to work for less than $10 per hour if only
fewer hours were available. But the employer is offering $10 an
hour, so the worker decides to work more hours, giving up free
time. Up to 40 hours a week, that free time was "worth"
less than $10 per hour to the worker. But as hours worked increase,
the line of equal preferences becomes steeper, so that each extra
hour of free time is worth more. For example, the 41st
hour might be worth $10.50 to the worker. If the employer only
is offering $10, the worker decides to stop working after 40 hours.
That is, at 40 hours, the disutility of one more hour of work
($10) just equals what is gained from working up to that 40th
hour ($10). But beyond this point, the disutility of working an
extra hour exceeds $10, so an hourly pay of $10 is insufficient
to induce the worker to work beyond 40 hours.
Diagramatically, Figure 3 illustrates an equilibrium solution
at the point where the line of equal preferences just touches
the income line. This is where the extra gain from working one
more hour ($10) is just exactly balanced with the amount of disutility
(also $10) associated with one less hour of free time or one more
of work. Given the way these hypothetical diagrams are constructed,
this is at 40 hours of employment, giving an income of $400 per
4. Some Implications of the Model.
a. Overtime Wages. Figure 4 illustrates why employers generally
pay higher wages for overtime. After the regular, agreed upon,
number of hours worked, the only way that the employer can induce
the worker to work extra hours is to offer a higher wage rate
for these extra hours.
b. Supply Curve of Labour. This approach also explains
how people alter their hours of work as pay rates increase, with
the result that people may not be willing to work very long hours
at employment. As wage rates increase, individuals are willing
to substitute more non-working time with hours worked. That is,
the higher pay induces them to put up with more disutility of
work or less free time. But the higher wages also have a positive
effect on their incomes, producing higher and higher incomes.
As the individual's income rises, there may be a preference for
less time being spent at the job, and more hours spent as free
time. This latter (income effect) tends to dominate, producing
an equilibrium at reduced hours worked. This is what economists
call the backward bending supply curve of labour.
In Figure 5a, a wage increase from $5 to $10 per hour leads to
a worker deciding to work more, increasing hours worked from 30
(point A) to 50 (point B). But as wages increase more, to $20
per hour, the worker cuts back hours of work to 40 hours (point
Another way of thinking of this is that the worker may have a
target income that is to be achieved, and this produces the same
result. That is, if you need $250 per week, and if the wage rate
is $10 per hour, then you work 25 hours. If the wage rate is $15
per hour, you need only work $250/15 16.7 hours.
c. Different Preferences of Male and Female REM. Folbre
notes how it is sometimes argued that some people who have a greater
preference for household work or leisure than do others. Alternatively
expressed, some people have a greater disutility associated with
employment than do others. Given the same wage rate, those with
greater preference for free time and greater aversion to work
will put in less hours at a job than do those people with less
preference for these. In Figure 6, the line of equal preferences
is steeper for F than for M, at least at the point where F decides
not to take on more hours of employment. That is, for F, each
extra hour worked requires that the pay be greater than for M.
If F is female and M is male, then F will work considerably fewer
hours than A. This is the reason given by REM at the top of page
19 of Folbre. "Women want to save their energy for housework
and child care." Also near the bottom of the same page, "Women
place a greater value on family amenities in general, children
in particular. They are willing to pay a higher price for family
life, because they enjoy it more."
Of course, if there is a target income, or if M and F are husband
and wife and M does not share his income with F, then the result
could be quite different. Folbre notes (bottom of p. 19) that
this might be REM's response to the issue of the sexual division
of labour, that is, that females have a greater preference than
do males for family amenities and children. The feminist response
is that this might explain why women are less likely to marry
d. Different Male and Female Wages. A lower wage for females
than for males could also explain the fewer hours of employment
for females. With similar curves of equal preference, females
might choose to be employed for fewer hours, because it is just
not worth their while to put in long hours away from the home
when they are paid little. In addition, if males and females pool
their incomes in the household, then the female can benefit from
the higher male wage, as the income from the latter is redistributed
within the family (the family wage). This is illustrated in Figure
5. Evaluation of the Model of Choice of Hours Worked.
a. Positive aspects. The model is concise, relatively simple,
and strips away many issues that may confuse the question of how
choice is made. It focuses directly on the main element of choice
- between time and money, and produces a quick and understandable
set of results. In principle the model is testable, as are each
of the implications noted in section 4. The model can be widely
applied, across space, time, social groups, and societies, and
it is not specific to any one time or place. The explanation provided
by the model is reasonable, that is, that time spent at a job
has a disutility which must be compensated for by wages. This
model provides an example of the power of some of the neoclassical
b. Negative features. At the same time, the model may be
too simplistic, in that in reality other factors impinge - types
of jobs, varied sets of responsibilities, limited incomes, coercion,
limited opportunities, and discrimination. This choice is not
one that is available to most individuals. Employers often dictate
the number of hours of the job, and the only choice is one of
whether to take that job or not. The model does not consider reasons
for different preferences. For example, poverty or low income
may dictate very long hours worked, regardless of preferences.
Unemployment may mean that an individual faces the possibility
of no hours of employment being available. Trade unions and employers
each act as organized groups, dramatically affecting the structure
of the labour market and the choices available for individuals
c. Relation to Structure of Theory. (Refer to schema of
January 6 and 8, 1998). The model of choice of hours worked illustrates
an ideal type model of the central panel in the diagram. The model
makes assumptions about preferences and wages; uses concepts such
as utility, wage, job; constructs statements (written or diagrammatic);
puts these in formats like the diagrams shown; and yields hypotheses
and explanations. It appears to illustrate all the aspects of
the middle panel. Where the model is weaker is in relation to
what is noted on the left and right panels, such as the fact that
most employers do not offer work on this basis. Some hypotheses
and conclusions from the model can be verified (overtime paid
at a higher than normal rate of pay, backward bending supply curve
of labour), other hypotheses such as the different preferences
of male and female for household as opposed to market work may
also seem to be verified, but also are consistent with other models.
In addition, the policy and practice portion of the model may
be weak. But the model is internally consistent, makes sense once
the assumptions are adopted, and yields some useful conclusions.
6. Terms Associated with Models.
Exogenous - originating from without. The rules, norms, and
preferences are exogenous to the model because they are
assumed to be given.
In the model of hours at the job, the wage rate is exogenous, because
it is fixed by the employer.
Rules that do not allow a worker to choose the number of hours
to be worked and modify the contract between worker and employer
are exogenous to the above model. That is, they are based on social
practice that is set out in laws or agreed upon practice.
Endogenous - originating from within. In the model of hours
at the job, the number of hours at the job chosen by the worker,
the number of hours of free time resulting, and the costs and
benefits obtained from this decision are endogenous to the model.
B. IRSEP - Imperfectly Rational Somewhat Economic Persons.
The model of rational economic man (REM) is the model that typifies
the neoclassical economic approach. This is the model of many
textbooks in economics, and it emerges from the classical liberal
economic model. In stylized form, Folbre summarizes the model
succinctly as follows:
REM - Traditional Neoclassical Stylized Model (p. 24).
Exogenously given factors: rules, norms, preferences
In recent years, the REM model has come under considerable criticism,
because it seems quite different from the experiences of people
and differs from the institutional features that exist in the
economy and society. As a result, economists have modified their
models and Folbre describes some of the modifications on pp. 20-25.
She labels this model the imperfectly rational somewhat economic
person (IRSEP). In summary form, this model is described as follows
IRSEP - Neoclassical Institutional
Partially endogenous and partially exogenous factors: rules, norms, preferences
Agents: individuals, interest groups
Processes: exchange, bargaining, coordination
Sites: markets, social institutions
The IRSEP model brings the theoretical economic approach closer
to the institutional reality that people experience in contemporary
society. But the result of the modifications is that IRSEP "undermines
any strong claims about the inherent efficiency of a pure market
economy" (p. 24). That is, the very strong positive social
and economic result of the REM model may no longer hold. For example,
if there is not perfect, costless information, with reasonable
certainty about the future, there is no assurance that consumers
will select those products that maximize their satisfaction. They
may instead consume products on the basis of habit and custom,
ease of availability, or advertising.
Assumptions and Modifications. The following notes contain
a discussion of the assumptions associated with the REM model,
and the changes to these assumptions that appear in the modified
1. Individual. The model focuses entirely on the individual.
The individual is isolated, with no reference to interaction with
other individuals. This is sometimes referred to as an atomistic
model of society, whereby the individual is the basis of society
(Hunt, p. 41). A decision is made by an individual without any
reference to others, with that individual considering only his
or her own choices, opportunities, monetary gain, and disutility.
This is the basis of a liberal model of society - i.e.
a society constructed from the set of all the individuals, although
in the original liberal model, the individuals were all male.
These individuals have a certain equality with each other,
although there may be much debate about what the nature of that
One way in which this model has changed is that economists have
introduced a wider range of types of decision makers. In the IRSEP
model, the decision makers could be individuals, households or
families, or interest groups.
a. Household and family. There is now a whole new household
economics, considering factors such as choices within the family,
choices concerning the number of children, the benefits of love
and sex, and the costs of exit from the model (divorce or separation).
It is not clear in the REM model why REM would even want to form
There are many within household strategies. An example of how
changes in social and economic conditions changes the relationship
between children and family (middle of p. 23). In societies where
the child depends on a bequest from the parents, then within family
solidarity may be strong, and children contribute to family income
and maintain the elderly parents. This could be characteristic
of many agricultural societies, or groups that have family enterprises.
As industrialization occurs, with the development of a more jobs
and activities outside the household, children may become less
committed to the family of origin, and contribute little to the
parents. Education, jobs and incomes are part of the market economy
and the child has little choice but to become committed to finding
a place there.
b. Collectivities. Trade unions. Individuals may take actions
that impose considerable cost on themselves, without any assurance
of immediate gain, other than some promise that if all in the
same situation act together, all are likely to gain. Strikes impose
many costs on not just the individual workers but family members
and other individuals. But in the end this may be worthwhile for
the trade union members. Because these choices involve discussion
and strategizing with other members, these cannot be individually
based decisions, but must be collective in nature. At the other
end, those who decide to become racists, discriminating against
certain types of other individuals, may themselves bear costs.
Individuation. Folbre (p. 28) asks how collective action
occurs. People start as individuals and become socialized into
a certain group. Folbre argues that the process of individuation
may be a collective one. As individuals develop links and commitments
to others, this helps them define their identity - so that one
is not just a female, a worker, a lesbian - rather, the individual
may be none or all of these, and her view of her own identity
is one that develops as a result of a complex of interactions
and processes involving these. The process of socialization of
children, whereby children become individuals, but simultaneously
become part of a peer group shows that the process of development
of the individual cannot be considered apart from the collective.
c. Boundaries. For Folbre, this also raises the issue of
where the individual ends and where the collectivity begins. This
is clear cut for REM and probably IRSEP, but not so clear in practice.
These boundaries may shift depending on the context in which the
individual is in, they are likely to change over time, and they
imply difficulty defining the utility or interest of the individual.
For example, the model of choice of hours might have made sense
at one time, but if an individual is part of a family, the decision
concerning hours worked is likely to be a joint one, between partners
(how many hours each will work), and perhaps with respect to child
care responsibilities (how much time to devote to those). The
individual is no longer clearly able to make decisions in isolation
- some decisions may occur this way, others are made jointly with
partner, children, parents, or friends, so the boundaries shift
depending on what decision is being considered. Many of the decisions
may interact, so that there are both shifting boundaries and interacting
decisions, making simple models such as the choice of hours worked
less clear cut.
2. Economic Self-Interest. The decision in the model
is a self-centred one, in that there is no reference to
the feelings, utility, or well-being of other workers, associates,
friends, family, or household. In addition, the focus of the model
is on economic or monetary self-interest. Other variables may
be considered as being present, in terms of preferences, but do
not form a central role in the decision-making process. For example,
in the case of choice of hours worked, the individual balances
monetary gain against the value of the loss of free time. While
this is reasonable, there may be a more complex process involving
non-monetary characteristics of the job, relationships with co-workers,
family commitments, and norms concerning work behavior. These
latter variables might be captured by the shape of the curves
of equal preference (see item 6 below), but there is little explicit
analysis of these.
The modifications in the IRSEP model may recognize love, caring,
help for others, or altruism: "unselfish devotion
to the interests and welfare of others" and altruistic
behaviour: "thoughtful of welfare of others" "unselfish"
(Gage). Folbre questions how someone could be so narrowly self-centred
in market behavior and so altruistic in the home (p.20). The two
forms of motivation seem at odds with each other and it is not
clear that individuals can act so differently in different situations.
What Folbre proposes is that families can be considered to be
sites where there are "shifting and somewhat unpredictable
mixtures of selfishness and altruism" (p. 23). Both of these
are reasonable explanations of what we consider to be types of
household behavior, and each is rational. At the same time, these
two forms are always being considered, balanced, re-considered,
or re-negotiated. These two are somewhat reminiscent of Talcott
Parsons pattern variables.
3. Perfect information. In the above model, the wage rate
is known to the worker. Also implicit in the model is that the
worker knows the wage rates of other employers and the state of
the labour market. Utility or disutility of work is also known,
or the individual finds it possible to balance these two. In models
of commodity markets, consumers know prices and qualities, and
there is no cost of obtaining information about these.
The IRSEP model recognizes that (i) the future is not known with
certainty, but is uncertain, (ii) obtaining information is costly,
so that decisions are likely to be made on the basis of very limited
and partial information, and (iii) the process of making a decision
may take time and be a difficult and costly process. (p. 20) As
soon as these modifications are recognized and included in a model,
the decision-making process may be much less clear-cut and difficult
to conduct in a rational manner. For example, in terms of daily
activities, people may continue with their usual course of action
because they have inadequate information to make a rational decision
about changes in these actions.
4. Rationality. In order to reach an equilibrium point
in the model or to undertake an activity, the individual must
make a decision. The models assume that the decision-making process
is rational, that is, the individual carefully weights
the advantages and disadvantages of any course of action, making
this process considered and deliberate. The result of the decision
is to produce the best course of action for the individual.
There are many circumstances where it may be difficult for an
individual to be so rational. For example, a worker may wisely
save hard earned income for retirement, and then go on a gambling
or spending binge for a short time if a windfall comes his or
her way. For the REM model, this is clearly irrational. But money
is a social good, with different forms of money having different
meanings for individuals - in violation of the rational principles
of the model.
Again, the IRSEP model may recognize irrationality (p. 21), or
the individual may be rational in some aspects of behavior, but
may be irrational in others. Forms of behavior such as religious
activity, love, discrimination against others all could be considered
irrational in the REM model, because each of these could result
in not being able to obtain the greatest economic benefit for
himself or herself.
Folbre discusses some of the meanings of rationality (pp. 26-28)
in a manner similar to some of the meanings of rationality discussed
by Max Weber. Within the REM model, rationality is assumed to
be a clearly delineated self-interest, and no more. Folbre notes
that (i) rationality may involve something more than self-interest,
and could include care for others or a decision to act in concert
with others, and (ii) that self-interest itself may be a fuzzy
concept, with shifting and contradictory meanings. For example,
more goods for self leave less for children or partner, more time
working at trade union means loss of family time. How are all
these to be balanced. Folbre proposes what she calls substantive
rationality or purposeful choice (p. 28). This means
that we "ask how people define and pursue their desires,
but avoids any implicit dichotomy between rational and irrational"
(p. 28). Certainly economic self-interest is part of this, but
this is only part of a larger set of motivations for decision-making.
5. Inert. In the REM model, the individual is inert
in that the individual does nothing unless some utility can
be obtained it. The above model would have people working no hours,
and essentially doing nothing, unless they are rewarded monetarily.
This idea emerged in nineteenth century liberalism by those who
thought of people as lazy and unwilling to work. (Hunt, p. 41).
While this is not an aspect of the models noted by Folbre in REM
or IRSEP, it was part of the original liberal economic and political
6. Tastes and Preferences Given. While the REM model recognizes
that there may ve very different sets of preferences among different
individuals, the models themselves are not particularly concerned
with the different sources of these. In the model of hours worked,
the slopes and shapes of the lines of equal preference are determined
outside the model, or are exogenous to the model. These
are based on norms and preferences, which are part of sociology,
The IRSEP model recognizes some of this as a problem, and may
attempt to incorporate the idea that norms are slow to change
(p. 22), or that the economy, through advertising or other cultural
activities may influence the individual and result in changed
preferences. That is, more than prices and incomes are involved
in determining choices. An IRSEP model might permit certain norms
such as "a good day's work for a good day's pay," or
the "family wage" to be instituted within the labour
market. Note that the main modification Folbre makes here is that
the rules, norms, and preferences become partly endogenous factors,
rather than purely exogenous factors. This makes the analysis
much more sociological in that norms, preferences, rules, and
culture all form an essential aspect of sociological analysis.
7. Free Choice. In the REM models, the individual has choice,
but within the context of scarcity. Note that no one dictates
the hours of work, and this can be freely chosen. Choice is freely
selected, no one is telling the worker how many hours to put in
at the job. Coercion, discrimination, treatment on the basis of
race, ethnicity, or sex play no role in this model
Folbre notes that IRSEP has developed a number of models to deal
with some aspects of this. On p. 21, she notes that employers
may make hiring decisions on the basis of superficial characteristics
such as skin colour or sex, using these as a proxy for what they
think may be the abilities of workers, without ever attempting
to find the true ability of each worker. Institutions also promote
people within the institution, either because there is an internal
labour market, or because of union seniority rules, or both. These
again limit individual choice and lead to models such as bargaining
models and game theory. Marxist structural models make a more
systematic and thorough critique of this assumption.
8. Personal and Financial Assets Given. This may not be
so apparent in the above model, but is an assumption of the microeconomic
REM models. While the size of an individuals assets may change
over time, through decisions concerning education or starting
a business, the choice models often do not question the amount
of these at any one point in time. In addition, these models do
not usually consider the consequences of great differences in
The IRSEP models address these concerns by considering that there
is not always equal opportunity, or by examining the distribution
of income and wealth that occur in society. An examination of
this usually shows great inequality, with a few very wealthy,
considerable numbers of poor and disadvantaged individuals, families,
and groups, and the bulk of the population between these two extremes.
9. Competition. For the general positive economic and social
results of the REM model to occur in society, there must be competition,
that is, large numbers of producers and consumers, with no one
able to influence the price, and with no barriers to entry or
exit from the market.
In practice, there are many ways in which this is violated in
the REM models and a large part of the IRSEP approach is to build
models that show how imperfect competition, oligopoly, and monopoly
affect decision-making. Some of these models use bargaining and
coercion, rather than free choice, as means of reaching a solution.
There are models that incorporate barriers to entry (financial
barriers such as inability to raise capital or high entry fees).
Contracts may be broken or may not work as anticipated. Discrimination,
unemployment, and boom and bust cycles all interfere with the
ideal workings of competition.
Folbre points out though that once all these elements are introduced
into the model, the very positive social and economic consequences
of the REM model are unlikely to occur. That is, if the REM model
works properly, production using the scarce resources is maximized
and individual satisfaction is also maximized, so that there is
economic efficiency. But if the modified IRSEP models produce
very many deviations from the original equilibrium solution, there
is no way to judge the efficiency of the outcome. Different outcomes
may be evaluated against each other, but there is no assurance
that there is not some other outcome that might be a lot better.
Folbre concludes the section on neoclassical economic models by
noting that there have been many modifications and improvements
in these models. Her analysis builds on these changes, but she
also notes that a feminist approach must go beyond the rational
choice models. In addition to the detailed modifications she notes,
her discussion of (i) purposeful choice, and (ii) strategies,
are both worth considering (p. 28).
Purposeful choice is a concept that looks on individuals
as making choices. However, these choices need not be characterized
as rational or irrational, individual or collective,
or so decisive as in the REM model. For Folbre, people make choices
in the context of others, with more than pure individual economic
self-interest being the chief consideration. There may be a range
of motivations, some selfish and some altruistic; there may be
shifting boundaries among individuals and groups; and there may
be imperfect information within which to make decisions. Choices
do occur, but it is necessary to consider "how people define
and pursue their desires" (p. 28).
A related concept is that of strategy, whereby purposeful
choice defines a range of actions that an individual might take.
For example, Folbre notes how collective action may be a "defensive
strategy for protecting against a public 'bad' being imposed from
without" (p. 28). It may be that there is a range of choices,
but (i) each set of choices involves aligning the individual with
others in different ways, and (ii) the choice may have a longer
term set of consequences. Folbre does not really develop the implications
of this idea, but it seems implicit in her analysis.
Hunt, E. K., Property and Prophets, sixth edition.
Lipsey, Richard G., Paul N. Courant, and Douglas D. Purvis, Microeconomics,
eighth Canadian edition, New York, HarperCollins, 1994.
Notes for February 26 and March 3, 1998 class. Last edited on March 3, 1998.
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