Identity economics captures the idea that people make economic choices based on both monetary incentives and their identity: holding monetary incentives constant, people avoid actions that conflict with their concept of self. The fundamentals of identity economics was first formulated by
Nobel Prize
The Nobel Prizes ( ; sv, Nobelpriset ; no, Nobelprisen ) are five separate prizes that, according to Alfred Nobel's will of 1895, are awarded to "those who, during the preceding year, have conferred the greatest benefit to humankind." Alfr ...
–winning economist
George Akerlof
George Arthur Akerlof (born June 17, 1940) is an American economist and a university professor at the McCourt School of Public Policy at Georgetown University and Koshland Professor of Economics Emeritus at the University of California, Berkeley. ...
and
Rachel Kranton
Rachel E. Kranton (born c. 1962) is an American economist and James B. Duke Professor of Economics at Duke University. She is a member of the National Academy of Sciences, the American Academy of Arts & Science, Fellow of the Econometric Society ...
in their article "Economics and Identity," published in the ''
Quarterly Journal of Economics
''The Quarterly Journal of Economics'' is a peer-reviewed academic journal published by the Oxford University Press for the Harvard University Department of Economics. Its current editors-in-chief are Robert J. Barro, Lawrence F. Katz, Nathan ...
''.
This article provides a framework for incorporating
social identities
Social organisms, including human(s), live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary or not.
Etymology
The word "social" derives from ...
into standard economics models, expanding the standard
utility function
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
to include both pecuniary payoffs and identity utility. The authors demonstrate the importance of identity in economics by showing how predictions of the classic
principal-agent problem change when the identity of the agent is considered.
Research
Akerlof and Kranton provide an overview of their work in the book "Identity Economics," published in 2010. In the book, they provide a layman's approach to Identity Economics and apply the concept to workplace organization, gender roles, and educational choice, summarizing several previous papers on the applications of Identity Economics.
While this ''macro-economic'' theory deals exclusively with already well established categories of social identity,
Laszlo Garai when applied the concept of social identity in
economic psychology
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory.
...
takes into consideration identities ''
in statu nascendi'' (i.e. in the course of being formed and developed). This theory that is referred to the macro-processes based on a "large-scale production" later gets applied to the individual creativity's psychology: Garai derived it from the principal's and, resp., agent's "identity elaboration". A further special feature of Garai's theory on social identity is that it resolved the contradiction between the ''inter-individual phenomena'' studied by the social identity theories and the ''intra-individual mechanisms'' studied by the brain theories: L. Garai presented a theory on an ''inter-individual mechanism'' acting in the world of social identity. The theory that was referred in the beginning to the macro-processes based on a large-scale production later has been applied by Garai to the micro-processes of individual creativity.
Following papers have used social identity to examine a variety of subjects within economics. Moses Shayo uses the concept of social identity to explain why countries with similar economic characteristics might choose substantially different levels of redistribution. The paper won the 2009
Michael Wallerstein
Michael Wallerstein (16 January 1951 – 7 January 2006) was a noted political scientist and the son of psychoanalyst Robert S. Wallerstein and psychologist Judith Wallerstein. He was also the cousin of the American sociologist Immanuel Wallerste ...
Award, given to the best article published in the area of political economy. Daniel Benjamin, James Choi, and Joshua Strickland examine the effect of social identity, focusing on ethnic identity, on a wide range of economic behavior. For a review of papers that study economics and identity, see articles by Claire Hill (2007) and John Davis (2004).
[John Davis (2004), "Identity and Commitment," Tinbergen Institute Discussion Paper, TI 2004-055/2.]
References
{{Reflist
External links
"Identity Economics" homepage
Akerlof's UC Berkeley page
Kranton's Duke page
Economic theories