Presentation Speech by Professor Assar Lindbeck of the Royal Swedish Academy of Sciences, December 10, 1992.
Translation of the Swedish text
Your Majesties, Your Royal Highnesses, Ladies and Gentlemen,
Gary Becker has made it his task to extend the analytical domain of what he calls “an economic approach” to various social issues. Now it is important to bear in mind that what Becker calls “an economic approach” does not mean that individuals are assumed to strive solely for economic gain. Non-pecuniary, and indeed also altruistic, aspects are part of Becker’s analysis alongside of pecuniary aspects. Therefore, the analysis should perhaps more appropriately be characterized as a theory of rational choice, i.e. of purposeful behavior, rather than as a traditional “economic approach.”
Such a concept of research might perhaps, when looked at superficially, seem trivial. But that is precisely what it is not. Human behavior in the areas where Becker has conducted his studies has hitherto often been assumed to be unexplained, habitual behavior, rather than founded on rational calculations. Moreover, had Becker’s approach been trivial, it would hardly have given rise to the amount of criticism and protest it was plagued with when first launched.
An important application of Becker’s model of analysis is his studies of education and on-the-job training, i.e. investments in human capital, as they are now called. With the aid of this concept, Becker has developed, and empirically tested, an explicit theory of the wage structure in society and its development over time. Researchers after Becker have used the same method of analysis, to explain among other things, such as diverse phenomena as economic growth, the composition of trade, and investment in the sphere of health.
Another of Becker’s important contributions is his analysis of the role of the family, or the household, in society. In traditional theory, the household was supposed to have a choice between income, and by means of this income, consumption of purchased consumer goods on the one hand, and leisure on the other hand. Becker’s basic idea is rather to look upon the household as “a small factory” producing services for the members of the household with an input of time and purchased consumer goods, the latter being regarded as intermediate inputs in the production process taking place in the household.
This analysis is an interesting example of how a new angle to an old question can lead to completely new insights. In the context of this alternative approach, a wage rise for example, leads to a shift to less time-consuming production of the services produced within the household. Rising wages on the open market make it more costly to have one member of the family specializing in household production (e.g. child care). Therefore, parts of the earlier social and economic functions of the family are moved to other institutions such as businesses, schools, day care centers for children and various public institutions. This development constitutes a stimulus to work outside the home, a stimulus that also makes parents choose to have fewer children, investing rather in more education for the children they choose to have. Becker uses his theory to explain the historical decline of fertility in the industrialized countries, and the differences in fertility between countries, and between urban and rural areas.
Becker has also applied his theory to the area of “crime and punishment.” He assumes that, except for a limited number of psychopaths, individuals who behave criminally react in predictable ways to different stimuli in the form of benefits and costs of criminal activities. This theory seems to provide realistic predictions about what groups of citizens can be expected to commit specific types of crime. The empirical studies conducted in connection with this theory also indicate that an increase in the probability of being convicted has a more discouraging effect on criminality than has the harshness of the punishment.
Yet another application concerns discrimination, with regard to race and sex, on the job and housing markets. Becker shows that such behavior works, purely analytically, as a “tax wedge,” i.e. a marginal tax, between social and private economic returns. Discrimination, therefore, tends to harm economically, not only the party subjected to discrimination but also the party carrying out discrimination.
I now turn to you, Professor Becker: You have always chosen important social issues for your research agenda, such as population growth, the role of the family in society, the importance of education and on-the-job training, crime and punishment, and discrimination. You have, thanks to your creative and often provocative research strategy, widened the domain of models of “rational choice.” It is a pleasure to convey to you the warmest congratulations from the Royal Swedish Academy of Sciences and to ask you to receive, from the hands of His Majesty the King, the 1992 Prize in Economic Sciences in Memory of Alfred Nobel.