A Treatise on the Family. G. S. Becker. Cambridge, MA: Harvard University Press. 1981. Gary Becker is one of the most famous and influential economists of the second half of the 20th century, a fervent contributor to and expounder of the University of Chicago free-market philosophy, and winner of the 1992 Nobel Prize in economics. Although any book with the word "treatise" in its title is clearly intended to have an impact, one coming from someone as brilliant and controversial as Becker certainly had such a lofty goal. It has received many article-length reviews in several disciplines (Ben-Porath, 1982; Bergmann, 1995; Foster, 1993; Hannan, 1982), which is one measure of its scholarly importance, and yet its impact is, I think, less than it may have initially appeared, especially for scholars with substantive interests in the family. This book is, its title notwithstanding, more about economics and the economic approach to behavior than about the family. In the first sentence of the preface, Becker writes "In this book, I develop an economic or rational choice approach to the family." Lest anyone accuse him of focusing on traditional (i.e., material) economics topics, such as family income, poverty, and labor supply, he immediately emphasizes that those topics are not his focus. "My intent is more ambitious: to analyze marriage, births, divorce, division of labor in households, prestige, and other non-material behavior with the tools and framework developed for material behavior." Indeed, the book includes chapters on many of these issues. One chapter examines the principles of the efficient division of labor in households, three analyze marriage and divorce, three analyze various child-related issues (fertility and intergenerational mobility), and others focus on broader family issues, such as intrafamily resource allocation. His analysis is not, he believes, constrained by time or place. His intention is "to present a comprehensive analysis that is applicable, at least in part, to families in the past as well as the present, in primitive as well as modern societies, and in Eastern as well as Western cultures." His tone is profoundly conservative and utterly skeptical of any constructive role for government programs. There is a clear sense of how much better things were in the old days of a genderbased division of labor and low market-work rates for married women. Indeed, Becker is ready and able to show in Chapter 2 that such a state of affairs was efficient and induced not by market or societal discrimination (although he allows that it might exist) but by small underlying household productivity differences that arise primarily from what he refers to as "complementarities" between caring for young children while carrying another to term. Most family scholars would probably find that an unconvincingly simple explanation for a profound and complex phenomenon. What, then, is the salient contribution of Treatise on the Family? It is not literally the idea that economics could be applied to the nonmarket sector and to family life because Becker had already established that with considerable success and influence. At its core, microeconomics is simple, characterized by a belief in the importance of prices and markets, the role of self-interested or rational behavior, and, somewhat less centrally, the stability of preferences. It was Becker's singular and invaluable contribution to appreciate that the behaviors potentially amenable to the economic approach were not limited to phenomenon with explicit monetary prices and formal markets. Indeed, during the late 1950s and throughout the 1960s, he did undeniably important and pioneering work extending the domain of economics to such topics as labor market discrimination, fertility, crime, human capital, household production, and the allocation of time. Nor is Becker's contribution the detailed analyses themselves. Many of them are, frankly, odd, idiosyncratic, and off-putting. …

A Treatise on the Family

In 1974 an article appeared in Science magazine with the dry-sounding title “Judgment Under Uncertainty: Heuristics and Biases” by a pair of psychologists who were not well known outside their discipline of decision theory. In it Amos Tversky and Daniel Kahneman introduced the world to Prospect Theory, which mapped out how humans actually behave when faced with decisions about gains and losses, in contrast to how economists assumed that people behave. Prospect Theory turned Economics on its head by demonstrating through a series of ingenious experiments that people are much more concerned with losses than they are with gains, and that framing a choice from one perspective or the other will result in decisions that are exactly the opposite of each other, even if the outcomes are monetarily the same. Prospect Theory led cognitive psychology in a new direction that began to uncover other human biases in thinking that are probably not learned but are part of our brain’s wiring.

Thinking fast and slow.

ple answer: Entrepreneurs create new businesses, and new businesses in turn create jobs, intensify competition, and may even increase productivity through technological change. High measured levels of entrepreneurship will thus translate directly into high levels of economic growth. However, the reality is more complicated. If, by entrepreneurship, one allows inclusion of any type of informal self-employment, then high levels of entrepreneurship may actually mean either that there are substantial bureaucratic barriers to formally creating a new business, or simply that the economy is creating too few conventional wage-earning job opportunities. Under these circumstances, we might reasonably hypothesize that high levels of entrepreneurship would correlate with slow economic growth and lagging development. For the past two years I have been the chair of the research committee of a multi-country survey effort known as the Global Entrepreneurship Monitor (GEM) project, which has begun to make headway in understanding how different types of entrepreneurship affect development. The starting point has been to distinguish “necessity entrepreneurship,” which is having to become an entrepreneur because you have no better option, from “opportunity entrepreneurship,” which is an active choice to start a new enterprise based on the perception that an unexploited or underexploited business opportunity exists. Analyzing data gathered by GEM researchers in 11 countries, Atilla Varga and I have found that effects on economic growth and development of necessity and opportunity entrepreneurship vary greatly. We found that necessity entrepreneurship has no effect on economic development while opportunity entrepreneurship has a positive and significant effect. After the fall of the Berlin Wall many uneconomical factories were closed in Central Europe as economies became integrated into the global economy. Those workers who had jobs in the plants and factories of the former socialist countries were productive members of society. However, as factories were closed one after another, many of these workers found themZoltan Acs

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How Is Entrepreneurship Good for Economic Growth

Professor Titmuss, an eminent English social theorist, believes that man is inherently altruistic and that the duty of government is to create that social and economic climate which best channels man's drive to work together for the common good. In support of this belief, he has written a book about the procurement, distribution, and transfusion of human blood, a medical topic which he employs as an illustrative social and economic microcosm. The conclusion he reaches is foregone: "The voluntary socialized system in Britain is economically, professionally, administratively and qualitatively more efficient than the mixed, commercialized, and individualistic American system" (Titmuss, R.M: "Why Give to Strangers?" Lancet 1 :123-125, 1971). As the book was written with a bias, so will it be read with bias. My own bias is that of an American and a blood-banker. I am only too conscious of many deficiencies in the American complex of arrangements—it isn't

The Gift Relationship: From Human Blood to Social Policy

THIS is a book of great length (444 pages of text), great learning (168 pages of notes), but not of commensurate understanding. It is a pity, because its defects may conceal its undoubted merits. When Dr. Popper is not caricaturing writers whose views he dislikes-and he dislikes a great many-he has a useful contribution to make to political thought, and his general moral theory (mainly to be found in the notes) is eminently sane and sensible. But for his passion for tilting at windmills he would have written a better and shorter book. The Open Society and its Enemies By K. R. Popper. Vol. 1: The Spell of Plato. Pp. vii + 268. Vol. 2: The High Tide of Prophecy—Hegel, Marx and the Aftermath. Pp. v + 352. (London: George Koutledge and Sons, Ltd., 1945.) 2 vols., 42s. net.

The Open Society and its Enemies

Using a normalized CES function with factor-augmenting technical progress, we estimate a supply-side system of the U.S. economy from 1953 to 1998. Avoiding potential estimation biases that...

https://www.econstor.eu/bitstream/10419/152801/1/ecbwp0367.pdf

Factor substitution and factor-augmenting technical progress in the United States: A normalized supply-side system approach

At the beginning of the twentieth century, the work of the Swedish economist Knut Wicksell (1901) marked an important advance in our understanding of the relationship between the structure of production functions and income distribution. Wicksell had asked the following question, among many others: Suppose that the marginal productivities are equal to the remuneration rates of each factor. What then should be the form of the corresponding production function? He pointed out (p. 125) that the general integral of the partial differential equation implied by this relationship was of the form Y = Lf(KIL), which meant in turn that the product Y was necessarily a homogeneous of degree one function of capital (K) and labor (L). As an example, he gave a function where the shares of K and L in Y were constant and wrote down the function which would be rediscovered decades later by Charles W. Cobb and Paul H. Douglas (1928).' However, it is only half a century later, in Robert M. Solow's Nobel Prize-winning 1956 essay, that implications between the structure of the production function and long-run equilibrium or disequilibrium of the economy were drawn. In his classic article " A Contribution to the Theory of Economic Growth," Solow had considered three cases analytically (other cases were also discussed geometrically, using a phase diagram). He had labeled the two first cases "1Hlarrod-Domar" and "Cobb-Douglas," respectively, and he referred to the third type of production function as "offering a bit of variety"; it was Y (aK"/2 + L/2)2, a particular case of Y (aKP + LP)"1P. In those early days, Solow had not pointed out to the reader that his cases could have been numbered 0, 1, and 2, following the elasticity of substitution of the corresponding production function. It would be only five years later, in 1961, that with his coauthors Kenneth J. Arrow et al., he would find the general form of the two-factor constant-elasticity-of-substitution (CES) production function by integrating the differential equation corresponding to the observed relationship between output per capita and the wage rate. Solow's third case was indeed highly interesting since it allowed the possibility of everincreasing income per head, even without any technical progress. Indeed, Solow showed that due to the efficiency of the system entailed by the particular production function he had chosen, there existed a threshold for the savings rates s to generate investment per head large enough for income per head to grow forever. That threshold was s nla2 where n is the growth rate of the population. It was then natural to ask whether one could express that threshold in terms of the elasticity of substitution a. The value of that threshold was determined by de La Grandville (1989) to be equal to s = no3(or"' ), where (a) is K's coefficient in a normalized CES function (equal to a in Solow's third case, where u -2); for any s and n values, this relationship gives also the threshold value (& in implicit form by the solution of ao1/[1 log 3Q(or)Ilog(nls)]. By totally differentiating the last relationship, one could observe that the threshold for the elasticity of substitution to entail ever-sustained growth was an in* Klump: Faculty of Mathematics and Economics, University of Ulm, Helmholtzstrasse 20, D-89081 Ulm, Germany; de La Grandville: Department of Economics, University of Geneva, 102 Boulevard Carl-Vogt, CH-1211 Geneva 4, Switzerland. We gratefully acknowledge the comments of seminar participants at Stanford University and at the Universities of Stuttgart-Hohenheim and Munich, where parts of the paper were presented. Also, we would like to thank, without implicating in any way, Robert Solow for his insightful remarks, and an anonymous referee for very helnfuil supgestions. ' Wicksell, Cobb, and Douglas would no doubt burst with pride if they knew that one of our first-year students wrote, in a paper of his: "Of course, we recognize here a Kirk Douglas production function."

Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions

The elasticity of substitution between capital and labor and, in turn, the direction of technical change are critical parameters in many fields of economics. Until recently, though, the application of production functions with specifically non-unitary substitution elasticities (i.e., non-Cobb–Douglas) was hampered by empirical and theoretical uncertainties. As recently revealed, ‘normalization’ of production-technology systems holds out the promise of resolving many of those uncertainties. We survey and assess the intrinsic links between production (as conceptualized in a production function), factor substitution (as made most explicit in Constant Elasticity of Substitution functions) and normalization (defined by the fixing of baseline values for relevant variables). First, we recall how the normalized Constant Elasticity of Substitution function came into existence and what normalization implies for its formal properties. Then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth. Next, we discuss the benefits normalization brings for empirical estimation and empirical growth research. Finally, we identify promising areas of future research.

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The normalized ces production function: theory and empirics

We examine inconsistencies and controversies related to the use of CES production functions in growth models. First, we show that not all variants of CES functions commonly used are consistently specified. Second, using a simple growth model, we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more probable. It is also pointed out that the effect of a higher elasticity of substitution on the speed of convergence depends on the relative scarcity of the factors of production. Finally, we discuss possible explanations of variations in the elasticity of substitution.

JEL classification: O41; O11

CES Production Functions and Economic Growth

We analyze a generalized neoclassical growth model that combines a normalized CES production function and possible asymmetries of savings out of factor incomes. This generalized model helps to shed new light on a recent debate concerning the impact of factor substitution and income distribution on economic growth. We can show that this impact relies on both an efficiency and an acceleration effect, where the latter is caused by the distributional consequences of an increase in the elasticity of substitution. While the efficiency effect is always positive, the direction of the acceleration effect depends on the particular savings hypothesis. However, if savings out of capital income are substantial so that a certain threshold value is surpassed we find that the efficiency effect dominates and higher factor substitution can work as a major engine of growth.

Rainer Klump

Papers

Factor substitution and factor-augmenting technical progress in the United States: A normalized supply-side system approach

Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions

The normalized ces production function: theory and empirics

CES Production Functions and Economic Growth

Factor Substitution, Income Distribution, and Growth in a Generalized Neoclassical Model