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A Theoryof Social Interactions
GaryS. Becker
Research
ofChicagoand NationalBureauofEconomic
University
i063
Io64 JOURNAL OF POLITICAL ECONOMY
1. Introduction
2
I owe thisreferenceto George Stigler.
3 See, e.g., Bradyand Friedman (1947), Duesenbery(1949), or Johnson(1952).
4 See Leibenstein(1950).
5
See Vickery (1962), Schwartz (1970), Alchian and Allen (1967, pp. 135-42), and
Boulding (1973).
6
Other draftsthatwere also circulatedinclude Becker (1968).
Io66 JOURNAL OF POLITICAL ECONOMY
2. Theoretical Framework
A. Equilibrium
fora SinglePerson
According to the modern (and very old!) theory of household behavior,7
R = Di + hA (2.4)
where h measures the effectof i's efforts,and Di the level of R when i
makes no effort;that is, Di measures i's "social environment."
His budget constraintfor money income can be writtenas
The right-hand side gives the sum of i's money income and the value to
him of his social environment, and will be called his social income. The
left-handside shows how his social income is "spent": partly on his "own"
goods (x) and partly on the characteristicsof others (R).'
If i maximizes the utility-output function given by equation (2.3)
subject to the constraint on social income given by equation (2.6), the
equilibrium condition is 10
U0
0 -e-
o D~~~~~~~~~~~~~~~~~
0 D SO SI R
FIG. 1
" If he can also reduce R by givingup own goods, the curve E,,S. would continuein
the southwestdirection(see ES, in the figure).However, thissectionwould be irrelevant
if R had positivemarginalutility.
SOCIAL INTERACTIONS I o69
x
hlis
U 2. UZ F. U1 U3
B. andPriceEffects
Income
An increasein i's own incomealone-without any changein pricesor the
social environment-wouldincreasebothx and R unlessone wereinferior.
The averagepercentageresponsein x and R per 1 percentchangein his
own incomeis notunity,but is lessby thefractiona, wherea is theshare
ofthesocial environment in hissocial income.12 Therefore,theeffectofa
change in his own income on his utility-output is smaller the more
importanthis social environment is.
Put differently, the greaterthe contribution of his social environment
to his social income,the more his welfareis determinedby the attitudes
and behaviorofothersratherthanby hisownincome.Traditionalmodels
where
pW x _ PRR - dx I, dR Ii x =PRDI
St St dI1 x d11 R St
and I am assumingthatPR is given (not dependenton h, x, etc.). Of course,the weighted
average of income elasticitieswith respectto a change in Si mustequal unity,as in the
usual analysis.
SOCIAL INTERACTIONS 1071
of choice by economistsassume that own efforts and access to property
income and transferpaymentsdeterminewelfare.On the otherhand,
thosewho stressthe social environment, its normativerequirements and
sanctionsforcomplianceand noncompliance,and the helplessnessof the
individualin the face of his environmentnaturallysee societydomin-
atingindividualefforts and, consequently,see littlescope forimportant
choicesby individuals.
The relativeimportanceof the social environment,as well as other
implicationsof the theoryof social interactions,can be empirically
estimatedfrominformationon expendituresmotivatedby these inter-
actions.If i's social environmentdid not change when his own income
changed, the induced absolute change in the characteristics of others
would equal thechangein his contribution to thesecharacteristics.How-
ever,therelativechangein hiscontribution would differ
fromtherelative
change in these characteristics because the level of the latteris partly
determinedby the social environment.
Consideragain figures1 and 2, wherean increasein i's own income
withno changein the environment is shownby a verticalincreasein the
endowedpositionfromE0 to E1. Since his equilibriumpositionchanges
fromeo to e1,thechangein R is exactlyequal to h1 - ho, thechangein i's
contribution to R. The percentagechange in R in figure1 is clearlyless
thanthatin A,sinceR is thesumofh and (a fixed)D. Since thepercentage
change in R in figure2 is negative,it is also less than the percentage
changein A,whichis positive(sinceh is negative).However,ifR had been
increasedby theincreasein i's own income-if, say, the new equilibrium
positionwas at pointe'-the percentagechange in R would be positive
and would clearly exceed in algebraic value the negative percentage
changein h.
The own-incomeelasticityofdemandforcontributions is relatedto the
ofdemandforcharacteristics
elasticity by thefollowingformula:13
dh I, nR__
_ _
(I~8
=
h -
-2 n( a ) (2.8)
Both termsare greaterthan zero because /B< 1, and d/l/dx < 0 (thisis shownshortly);
therefore, > 0.
dnhldcL
SOCIAL INTERACTIONS 1073
17 The endowment-income
elasticityof demand forcontributionscan easily be shown
to equal
Nh= .D = (NR 1) ( 1 + + 1
dD h 1-a
Eh= -
dhPRI= +l-x
ER [1 ?(l/f3 1)1
)](2.10)
3. Applications
Three specificapplicationsofthegeneralanalysisofsocial interactionare
now considered:interactions amongmembersofthesame family,charity,
and envyand hatred.These applicationsnot onlyprovideempiricalsup-
portfortheincomeand priceimplications just derived,but also bringout
a numberof otherimplicationsofsocial interaction.
A. TheFamily
Assumethati caresabout his spouse in thesensethati's utilityfunction
dependsonj's welfare.'9I assume untilmuch laterin thissectionthatj
definethe
does not care positivelyor negativelyabout i. For simplicity,
variable measuringthisdependence,R., as follows:
R = + /ii - S. = (3.1)
whereIj isj's own income,hij are the contributions fromi toj, Sj isj's
social income,and xj are thegoods consumedbyj. The social incomeofi
can be derivedby substituting equation (3.1) into equation (2.6):
+ Vj
IjjupXl=j l
slope- P
R, =x1
FIG. 3
The social income of i equals the combined own incomes of i and j, or the
"family's" own income. Moreover, the equilibrium condition given by
equation (2.7) implies that
aU I/ au. = __ - 1, (3.4)
or i would receive equal marginal utility from j's and his own
consumption.
Conditions (3.3) and (3.4) are shown in figure 3. Resources can be
transferredfrom i to j by moving along i's budget line in a southeast
direction fromthe endowed position at point Eo. The equilibrium position
is at point e, where the slope of i's indifferencecurves equals the slope of
his budget line ( = to -1 ). The vertical (or horizontal) interceptgives the
family's own income i's social income-deflated by the price of x.
I076 JOURNAL OF POLITICAL ECONOMY
without the need for any member to have dictatorial control over the
family's allocation of resources.
The result on the unimportance of the distribution of income among
persons linked by transferscan also be used to understand the interaction
among generations.23 Suppose that the resources of the present generation
are changed at the expense of or to the benefitof the resources accruing to
future generations. For example, increased government debt or social
securitypayments are financed by increased taxes on futuregenerations,
or increased public investment,perhaps in schools, with benefitsaccruing
to future generations is financed by taxes on the present generation. If
present and future generations are fully connected by a series of inter-
generational transfers,called "bequests," then each of these apparent
changes in the relative resources of present and futuregenerations would
tend to be offsetby equal but opposite changes in bequests. In particular,
increased public debt would not raise the real wealth or consumption of
the present generation or reduce that of future generations because in-
creased taxes on future generations would be matched by increased
bequests to them. Similarly, increased public investment in education
would be matched by reduced private investmentin education.24
The budget constraintof the head is determined by total familyincome,
not his own income alone-equation (3.3) for a two-person family can
be readily generalized to many persons. Since the head maximizes his
utility subject to his budget constraint, anything that increased family
income would increase his utility.Therefore, the head would consider the
effecton total familyincome of his differentactions, and would forfeitown
income if the incomes of other familymembers were increased even more.
For example, he would not move to another city if his spouse's or child-
ren's income would be decreased by more than his own income would be
increased. Or, although children usually eventually set up their own
households and fullycontrol theirown incomes, the head would guide and
help finance their investmentsin education and other human capital to
maximize the present value of the real income yielded by these
investments.25
Put differently,the head automatically internalizes the "external"
effectsof his actions on other family members.26 Indeed, because the
where mzu= aUhI%, and dxj measuresthe change in consumptionof the jth family
member.If the head can transferresourcesto othermembersdollar fordollar, in equi-
librium,
muO = 4hPj allj, (2')
wherei,, is the marginalutilityofincometo the head, and pj is the costofxj. Substitution
of eq. (2') into (1') gives
dUh = Ah(phdXh + E pjdXJ) = h pidX3.
(3')
i= 1, 7 h all i
Since the head takes an action if and only if dUh > 0, eq. (3') implies (since Ah > 0)
thathe takesan action if,and only if,
E PfdxJ> O. (4')
which was to be proved. all j
28 Recall that I have been assuming that only a single good is consumed by each
29
It is difficultto contrastmy derivationof a "family" utilityfunctionwith a tra-
ditionalderivation,since explicitderivationsare rare. The mostexplicitappears to be in
a well-knownarticleon social indifference curvesby Samuelson (1956). He considersthe
problemofrelatingindividualand familyutilityfunctions,but his discussionis briefand
the argumentssometimesare notspelled out. Withoutsufficient elaboration,he refersto a
consistent"familywelfarefunction"being graftedonto the separate utilityfunctionsof
different familymembers(p. 10). In addition, he says that a familymember's "pre-
ferencesamong his own goods have the special propertyof being independentof the
othermembers'consumption.But since blood is thickerthan water, the preferencesof
the different membersare interrelatedby what mightbe called a 'consensus' or 'social
welfarefunction'which takes into account the deservingnessor ethical worthsof the
consumptionlevels of each of the members."How are thesepreferencesinterrelatedby
a "consensus,"and should not the "deservingness"of the consumptionlevelsof different
memberssimplybe incorporatedintodifferent members'preferences (as in myapproach)?
Incidentally,at one point (p. 9), Samuelson appears to believe that if the familyutility
functionis the same as the head's, he musthave sovereignpower, which I have shown
is not necessary.He later (p. 20) says that "if withinthe familytherecan be assumed to
take place an optimalreallocationofincomeso as to keep each member'sdollar expendi-
tureof equal ethical worth,thentherecan be derivedforthe whole familya set of well-
behaved indifference contoursrelatingthe totalsof what it consumes:the familycan be
said to act as if it maximizes such a group preferencefunction" (italics in original).
In my analyses, the "optimal reallocation" results from interdependentpreferences
and voluntarycontributions, and the "group preferencefunction"is identical with that
of the "head."
Io8o JOURNAL OF POLITICAL ECONOMY
are not heads. The major, and somewhat unexpected, conclusion is that if
a head exists, othermembers also are motivatedto maximizefamily incomeand
consumption, evenif theirwelfaredependson theirown consumption alone. This is
the "rotten kid" theorem (I owe this name to the Barro family). For con-
sider a selfishmember j who can take an action that would reduce his
income by b, but increase that of another member k by c. Initially,j would
be worse offby b, since the gain to k is of no direct concern to him. How-
ever, if c = b, the head would transferenough additional resources toj
fromk to leave him (and k) equally well off,since intrafamilyreallocations
of income do not affect the consumption of any member. Moreover, if
c > b iffamilyincome were raised byj's action-and ifj's welfare were
a superior "good" to the head, then he would transferenough additional
resources to j to make j better off. Consequently, even a selfishj would
only undertake actions that raised family income or consumption,
regardless of the initial impact on him.
In other words, when one member cares sufficientlyabout other mem-
bers to be the head, all members have the same motivation as the head to
maximize family opportunities and to internalize fully all within-family
"externalities," regardless of how selfish (or, indeed, how envious) these
members are. Even a selfish child receiving transfersfrom his parents
would automatically consider the effectsof his actions on other siblings as
well as on his parents. Put still differently,sufficient"love" by one mem-
ber guarantees that all members act as if they loved other members as
much as themselves. As it were, the amount of "love" required in a
family is economized: sufficient"love" by one member leads all other
members by "an invisible hand" to act as if they too loved everyone.
Armed with this theorem, I do not need to dwell on the preferencesof
nonheads. Of course, just as there may be no head if all members are
sufficientlyselfish,so there may be none if they are all sufficientlyaltru-
istic. Each would want to transferresources to other members, but no
one would want to accept transfers.Aside from that, mutual interaction
or mutual interdependence of welfare raises no particular problems.30
30 It frequently oftheform
has beenallegedto methatmutualinteraction
U1 = U[xt, gX(U)]
Ui = Ui[xi, gJAU)],
wherexiandxj aretheownconsumption ofi andj, andgiandgj aremonotonic functions
oftheutility indexesU, and Up,results in instabilityand unboundedutilitylevels.For
it is argued,an increasein xi byoneunitdirectly whichraisesj'sutility
raisesi's utility,
through gj, whichin turnfurther and so on,untilUtand Uj approach
raisesi's utility,
infinity.Mathematically, thereis an infiniteregress,since,bysubstitution,
U, = U,[x,,g,{x, gj{x,,g, {xi, gj {... }].
However,withappropriate the
on the magnitudeof the interactions,
restrictions
infinite has a finiteeffect,
regress and the"reducedforms"of U, and Uj on xi and Xj
SOCIAL INTERACTIONS i o8 i
dgi = (E0 d=
arewelldefined. forexample,theCobbDouglasfunctions
Consider,
U, = XfaiUfb
= XafUbf
31
In one study,the elasticityof children'syearsof schoolingwith respectto parental
income is a sizeable + 1.2, at the same time that the elasticityof children'sincome
with
respect to parental income is only +0.3, or a 70 percentregressiontoward the mean
(unpublished calculations by Jacob Mincer fromthe Eckland Sample). Note in this
regard,however,that parentscannot easily preventconsiderableregressiontoward the
mean by investingin their children. For let the relation between the human capital
investedin childrenand parentalincome be
SC = a + b log IP + u,
whereb is the elasticityof parentalresponse,and u representsother determinantsof SC.
According to the theoryof investmentin human capital (Mincer 1974; Becker 1975
[in press]),
log IC = a + rSc + v,
where r is the rate of returnon human capital, and v representsotherdeterminantsof
log IC. Then by substitution,
log IC = (a + ra) + rblog I, + (ru + v).
Even if r were as large as 0.2, and b as large as 2.0, rbwould only be 0.4: the regression
toward the mean would be 60 percent.If v = c log Ip + v', where 1 - c measuresthe
degree of "intrinsic"regressionto the mean, thenby substitution,
log IC = (a + ra) + (rb + c) log Ip + (ru + tv').
Since the analysis in the text implies that b would be positivelyrelated to 1 - c as
parentstryto offsetthe "intrinsic"regression,the "observed" regressionto the mean,
1 - y = 1 - (c + rb) = ( 1 - c) - rb,
may be only weakly related to and also is less than the "intrinsic" regression1 - c.
I am indebted to discussionswithJacob Mincer on the issues sketchilycovered in this
footnote.
SOCIAL INTERACTIONS I o83
B. Charity
If someone makes contributionsof time or goods to unrelated persons or
to organizations, he is said to be "charitable" or "philanthropic." The
discussion of contributions within a family indicates that charitable
behavior can be motivated by a desire to improve the general well-being
of recipients.33 Apparent "charitable" behavior can also be motivated by
a desire to avoid the scorn of others or to receive social acclaim. Not much
generality is sacrificed, however, by only considering charity motivated
by a desire to improve well-being.34
The numerous implications about family behavior developed in the
previous section fullyapply to the synthetic"family" consistingof a chari-
table person i and all recipients of his charity. For example, no member's
well-being would be affectedby a redistributionofincome among them, as
32 It is generallybelieved that the United States has a more mobile "open" society
than European countries do; yet (admittedly crude) comparisons of occupational
mobilitybetween fathersand sons do not reveal large differencesbetween the United
States and several Western European countries (Lipset and Bendix 1959). Since the
analysis in this paper suggeststhat parents' contributionsto theirchildren'seducation
and other trainingis more responsiveto parental position in "open" societies,more
responsiveparental contributionsare probably offsettingthe greater "openness" of
Americansociety.
3 3The Random HouseDictionary
oftheEnglishLanguage(unabridged,1967) definescharity
as "the benevolentfeeling,especiallytowardthosein need or in disfavor."
34 The utilityfunctionof a charitablepersonwho desiresto improvethe generalwell-
being of recipientscan be writtenas
Ui = Uixi Xj ( -
Pi- )]
whereh is his charitalbegiving,xj measuresthe well-beingof recipients,and aU/lIj =
aUjIah > 0; that is, a unit increasein the own income of recipientshas the same effect
on the utilityof a charitablepersonas a unit increasein his giving.The utilityfunction
ofa personwho makes"charitable" contributionsto win social acclaim can be writtenas
U. U, xi IJ A
where still aUjiah > O-an increase in his contributionswould increase his acclaim-
but now the sign of aU1/Ij is not so obvious. If, however,contributionsand the income
of recipientswere much closer substitutesforeach otherthan forthe own consumption
ofthecontributor, whichis plausible,thentheseutilityfunctionshave similarimplications.
Not much generalityis sacrificed,therefore, by only consideringcharitymotivatedby a
desireto improvethe well-beingof recipients.
Io84 JOURNAL OF POLITICAL ECONOMY
Uj = Ui(xi, A) , (3.6)
where h measures the amount given by i, and xi are the other goods that
he consumes. This "conventional" approach does not imply that an
increase in i's income would increase his giving by a particularly large
percentage, or that an increase in the incomes of recipients would lower
his giving. Therefore, considerable ad hocery would be required if the
"conventional" approach were to explain the evidence on charitable
giving that is more readily explained by an approach that incorporates
social interactions.
These findingscan be used to make very crude, but instructive,calcula-
tions of the share of recipient's own incomes in the social incomes of
contributors. If the own-income elasticity of demand for giving is taken
from Taussig as +2.0, the share of own income spent on giving as 0.04
(see Schwartz 1970, p. 1278), and the income elasticity of demand for
charity as equal to the average income elasticity (actually, Schwartz's
findingssuggest that it may be lower than the average), then, according
to equation (2.9), charity's share in social income would be (2 - 1)/(1/
0.04 - 1) 0.4. If the own-income elasticity of giving were taken as
+ 3.0 rather than + 2.0, charity's share would double to 0.08; if, in
addition, the income elasticity of charity were only four-fifthsof the
average elasticity,its share would increase furtherto 0.1 1 (a tithe?).
3 It is easily
shown thatrj = 1 - Vmnm, where Urnis thesharespentonmerit goods;
nm,theirincomeelasticity; and rj, thereductioninj's ownspendingperunitincrease
in i's contribution.
Therefore,ifvm= 0.2, and nm= 2.0,rj = 0.6.
38 For example, ifj spent$0.60 lessforeach dollartransferredby i, the price to i
wouldbe p_ =pm(1/0.4)= 2.5Pm' ormorethantwicethemarket price.
SOCIAL INTERACTIONS Io87
a more general result proven elsewhere (see Becker and Stigler 1974) that relatively
largepensionsdiscourageemployeesfromactingcontraryto theinterests oftheiremployers
(a bequest servesthe same purpose as a pension).
Io88 JOURNAL OF POLITICAL ECONOMY
D. EnvyandHatred
An enviousor maliciouspersonpresumablywould feelbetteroffifsome
otherpersonsbecome worse offin certainrespects.He could "harm"
himself(i.e., spendhisown resources)in orderto harmothers:in figure2,
he givesup *o unitsof his own consumptionin orderto harm othersby
hounits.The termsof trade between his own harm and the harm to
others,given by the curve EOSl in figure 2, is partly determined
by his skill at "predatory"behavior and partlyby public and private
expenditures to preventcrime,libeling,maliciousacts,trespass,and other
predatorybehavior. Since an increasein these expenditureswould in-
crease the cost to him of harmingothers,he would be discouragedfrom
harmingthem.The limitedevidenceavailable on predatoryexpenditures
supportsthisimplicationof the theory.Crimesagainst personsprovide
some evidenceon predatorybehavior,since most assaultsand murders
probably are motivatedby the harm to victims.43The frequencyof
assaults and murder (and also crimesagainst property)apparentlyis
stronglynegativelyrelatedto the probabilityof conviction,punishment,
and othermeasuresof the cost of committingthesecrimes(see Ehrlich
1973).
Section 2 suggeststhat a rise in own income would tend to reduce
predatoryexpenditures.An increasein the social environment,44 on the
other hand, would necessarilyincrease these expenditures,unless own
consumption werean inferior good. Therefore,a risein thesocialenviron-
mentand own incomeby the same percentagewould reduce predatory
expenditures by less than would a rise in own income alone, and might
even increasethem.
Again, the implicationsof the theorycan be testedwithevidenceon
crimes against persons. Since assaults and murdershave been more
frequentat lowerincomelevels,45an increasein own incomeappears to
reduce crimesagainst persons,if differences in own income alone are
measuredby differences in theincomesofindividualsat a momentin time
(as in thediscussionofcharityin Section3B). As predictedby thetheory,
an increasein own income that is accompanied by an increasein the
social environment (as measuredby the incomeof others)does not have
such a negativeeffecton thesecrimes.Indeed, the frequencyof assaults
and murdershas not been reduced by the sizeable growthin aggregate
incomesduringthe last 40 years,nor do higher-income statespresently
have fewercrimesagainstpersonsthan otherstates.46
income states do not have fewercrimes against personseven when the probabilityof
conviction,the punishment,and several other variables are held constant (Ehrlich
1973, tables 2-5). Note that Ehrlich's study,unlike the evidence fromthe Crime Com-
mission,holds the "price" of crime constantwhen estimatingthe effectsof income (and
holds income constantwhen estimatingthe effectsof price).
"4 Not much later, JeremyBentham reached a similar conclusion: "The pleasure
derivable by any person fromthe contemplationof pain sufferedby another,is in no
instanceso great as the pain so suffered"(Bentham 1952-54).
48 Similarly, a sociologistrecentlyhas arguedthatenvyis a powerfulmotivein primitive
as well as advanced societies,communistas well as capitalist ones, and is critical in
determiningeconomicprogressand public policy (see Schoeck 1966).
41 "Own" income here includes the value of other
aspects of the social environment.
I090 JOURNAL OF POLITICAL ECONOMY
social environment
and own incomeby the same percentage,pricesheld
constant, not affectsocial income or welfare. That is, a rise in all incomes
in a community by the same percentage would not improve anyone's
welfare in Veblen's world. 50
If social income were negative, if the environment causing envy were
more important than own income, a rise in the environment and
own income by the same percentage would lower social income and
welfare. That is, a general rise in incomes in a more extreme Veblenian
world would actually lower welfare! 5
On the other hand, Smith's belief that envy is a relativelyminor deter-
minant of welfare implies that social income is positive: the environment
causing envy is less important than own income. A rise in the environment
and own income by the same percentage would then raise social income
and welfare. That is, Veblen's general rise in the community's income
would raise the welfare of the typical person.
4. Summary
This essay uses simple tools of economic theory to analyze interactions
between the behavior of some persons and differentcharacteristicsof other
persons. Although these interactionsare emphasized in the contemporary
sociological and anthropological literature, and were considered the
cornerstone of behavior by several prominent nineteenth-centuryecono-
mists, they have been largely ignored in the modern economic literature.
The central concept of the analysis is "social income," the sum of a
person's own income (his earnings, etc.) and the monetary value to him
of the relevant characteristics of others, which I call his social environ-
ment. The optimal expenditure of his own income to alter these character-
istics is given by the usual marginal conditions. By using the concept of
social income, I can analyze the effecton these expenditures of changes in
differentsources of income and in differentprices, including the "price"
of the social environment. Perhaps the most important implication is
that a change in own income alone would tend to cause a relatively
large change in these expenditures; in other words, the own-income
elasticity of demand for these expenditures would tend to be "large,"
certainlylarger than the elasticityresultingfromequal percentage changes
in own income and the social environment.
References