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In This
Issue...
 The Economics of Choice
Children: A Blessing or a Lucky
Taxbreak
Welcome to the Wild
West
The Struggle to Have It
All
Features...
Peter Block
Column
Interviews
Day-in-the-Life
Stories
Views for a
Change
Pageturners
Heard on
the Street
Letters to the
Editor
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 The Economics of Choice
Even the High Priests of
Business—Econonmists—Struggle with Placing a
Value on Work and Home
-- A
business is a business is a business... And most
businesses are concerned about the economics of the
business—cost to produce, yields, production ratio,
etc.
But how do economists place a
value on our home life? What at first might appear to be
a simple answer becomes increasingly complex, if you
begin to challenge the responses from the view points of
philosophy, psychology and empowerment. In this special
interview, News for a Change attempts to do just
that.-
NFC: Is there an economic value of time?
Elliott: Time is a commodity. Time is input into
the production process in an economic sense just like
anything else is. We are constrained by time. There is
only so much time you have to make things and do things.
Individuals, in an economic sense, in a purely
theoretical sense, trade off between working and being at
home. Work gives you the money to do things during your
leisure time. Again, time is a commodity. One can only
spend so much time making stuff.
Block: We have the phrase, "Time is money."
Elliott: Time is money, in a purely economic
sense. Money is simply around so that we can talk about
value. Money tends to become a hang-up when you're
talking to a lot of people, because they think that, as
economists, that's all we care about. In fact, what we're
interested in is helping businesses make choices between
competing opportunities and creating goods.
Kramer: You view time as a variable in an equation
for understanding production. Isn't that an older model?
Now, with the whole economy moving to more knowledge
workers, it's not as easy to calculate the amount of time
it takes to do a specific component of a job.
Elliott: But time is still a finite resource.
Despite the idea of the 24/7 society, there are still
only 24 hours in a day and seven days in a week.
Block: But it's also a subjective experience. "I
don't have enough time..." Well, I have time for
everything that really matters. If my car runs out of
gas, I have time to get gas. If I'm on my way to a
wedding, and I'm late, and I'm nervous, and I get a flat
tire, do I have time to change a tire? No. Do I change
it? Yes. Also, I think time goes quickly when you're
having a great time. But when you're waiting in the
dentist's office, time goes slowly. So I think it's both
a 24-hour fact, and also a feeling.
Elliott: A shortcoming with economics is that we
understand that time can seem to pass faster at one time
than at another. But an hour is still an hour. That
creates an interesting economic issue that I have never
seen addressed. Usually it's set up that, with 24 hours
in a day, you can work at your leisure. What you're
suggesting, and what I think is true, is that there are
some gray areas that are blending. Working at home: Is
that really home time or is it work time? And is that
time valued differently?
Block: I think the notion of pay for time is
disappearing. Now you pay to have a job. Even the
production workers at Ford are being given a computer at
home. Why is Ford going to give 220,000 employees a free
computer? They want those workers to learn to use the
computer so they can bring it back to work, but they want
them to learn on their own time, not on Ford's time. Even
there, Ford is lowering the boundary of, "When am I at
work? When am I not at work?" They want the workers to
finance their own learning.
Elliott: And from an economic standpoint, that's
not a bad idea. For Ford, it's not a bad idea at all. Why
would I want to send my employees to computer training,
if I think what they're going to do, as soon as they have
it, is pack up and leave?
Block: That's not why they're doing it, though.
They're doing it to reduce their training costs. I think
organizations have now invaded our private space for the
sake of economic value to the organization. They give us
laptops so we can work at home. I think the growth of
telecommuting is driven by the need to reduce the cost of
office space. This is not done to make people's
lifestyles more comfortable. I think the organization and
the mind-set of economics is that the institution's
purpose is to make money. It is a major cause of the
dissolution of the family. And if you want to understand
how family values have disintegrated, and they have, I
think it's the workplace that's a driver of that, more
than the 60s, or the fact that immoral instincts are
totally accessible all the time. And nobody talks about
that. Nobody says that we have now given back the rights
fought so hard for by the union. And we've given them
back voluntarily. We do it willfully.
Kramer: I'm interested in what Steve's research
shows on how people rationalize their decisions.
Elliott: In an economic sense, rationality is
defined as self-interest, or only undertaking actions and
behaviors that make people better off. My research
suggests that if you go back and look at the theory that
builds this great model we have of perfect competition,
we as individuals, on a day-to-day basis, don't act
rationally. We assume that people's preferences are
transitive. For example, say you prefer apples to
bananas, and bananas to grapefruit; therefore you prefer
apples to grapefruit. The preferences are transitive. But
in the real world, if you go out and look at people's
preferences, they aren't transitive all the time.
Kramer: Use another example, like the decision to
work more. Or the decision to trade time for money. Most
of the research shows that people would be willing to
give up a certain number of hours of their workday for
more free time, and they'd take some kind of pay cut.
They'd rather have the time than the money.
Elliott: People don't understand preferences. We
assume preferences are well ordered, and they're not. A
prime example is a project I was involved with a number
of years ago stating values for non-market goods. This
study was looking at the forest service. We were getting
at the existence value of trees. How much do people value
trees? The project involved two phases. We brought people
in, and we said, "On the desk in front of you there's a
little tree. We're going to try to sell you that little
tree. If you buy it, you'll get to take it home, pet it,
water it and give it a name. If you don't buy it, we're
going to kill it." We actually picked someone out of the
group. He had these big scissors, and we picked someone
to watch us hack this tree down. And we asked them what
they were willing to pay for the tree. We used what's
called an incentive device to try to elicit actual value
instead of some sort of manipulative value, and the value
came out at about $5-8 to save a tree a foot high. What's
the cost of that little tree? If you go to a nursery,
it'll cost you about $5.
Then we turned it around. We brought
in people and said, "What's on your desk is yours. It's
yours to take home with you. Pet it, water it, give it a
name. But we'll buy it back from you. Before you leave,
we'll give you chance to give us the tree, and we'll pay
you for it." Now, economic theory suggests that those
values-the willingness to pay value, how much we paid for
the tree -should be very similar to the willingness to
accept-how much money can I give you to buy it back? They
should be almost the same value. Whether I'm buying or
selling the tree, my value of it should be the same. We
turned this into a "willingness to accept" question: How
much would we have to give you in order to sell us the
tree, knowing that if we buy the tree from you, we're
going to kill it? Anybody want to guess what the value
would be?
Block: I would say $25.
Kramer: Fifteen dollars.
Elliott: Forty-five dollars. And it was
constrained upward because that was all the money we
endowed them with. We had one man who freaked out and
wanted to buy all the trees for $300.
Block: Doesn't economics include a social
dimension, too? I bought a rug from a man in Morocco, and
I asked, "Did I pay too much for this rug?" And he asked,
"Are you happy with the rug?" I said yes and he said,
"Then you didn't pay too much." What I wanted to know
was: Did someone else get it for less? Then I would have
been angry. There's got to be some kind of social
dimension.
Elliott: It's really hard, because economists are
desperately trying to be physicists and come up with all
kinds of nice equations to explain all of reality.
NFC: What I'm hearing is that all these theories
break down when you go from the individual to a larger
whole. Yet, businesses have been largely influenced by
economic theory. So we make business choices based on
these economic theories.
Kramer: Would economics agree with that?
Elliott: I would shy away from that statement. I'm
uncomfortable saying that my model of perfect competition
is informing businesses on how to make their decisions. I
see it as more of a predictive. I'm not telling a
business how it should run, because I can't imagine any
business knowing what their marginal costs are. I don't
think they know the costs of producing the last unit of
output. I can't imagine that they know how to pay an
individual based on their marginal productivity, the last
amount of work that they get out of the last individual.
That's theoretically what the weight should be. If they
do that, I'm really impressed, because I'd like to know
how they measure it. What I've got are models that
predict outcomes, not the blueprint for making business
decisions.
Block: If you have models that can predict
outcomes, and one of the outcomes is that people are now
working 12 hours when they used to work eight-they've set
up an office at home, but they used to go to work to do
work-how would you have predicted that? What are the
dimensions of our lives that help predict that
reasoning?
Elliott: My model's wrong. That would be the most
basic way to start-that I have misspecified my
model.
Block: You couldn't have predicted this 24/7
culture?
Elliott: Ten years ago there was dichotomy. "I
work, or I go home." I can break time up into work time
and leisure time. Therefore, I would consider time to be
equal to my work time plus my leisure time.
Kramer: This is more "old model" thinking. Work is
a positive for many people. In fact, it's sometimes more
of a positive than leisure.
Block: There's a great story about a child on the
side of the road who had five statues of a god, and a guy
said, "How much are they?" The kid answers, "They're a
dollar a piece." And they guy says, "I'll take all five.
Will you sell them to me?" And the kid says, "No. What
will I do for the rest of the afternoon?"
NFC: People are complaining about how to balance
time at work and time with family. Do you think this is
an issue that organizations should be concerned about? Or
do you think it's just going to all balance out? Is this
an issue from an economic standpoint?
Elliott: From my position as an economist, this is
not a problem. It's something that, as economists, we
need to understand because our models are not currently
developed to do that, at least not the ones I've seen. So
what I really want to do, if I want to understand the
choices people are making, is change my models.
Kramer: So economics really can't help us
understand the issue?
Block: Economists do have a powerful position, and
I think the economics position far dominates this culture
more powerfully. Even if you as an economist think you're
wrong most of the time, we are left with the remnants of
your history. Economists ask, "What's the problem?" When
people complain about work/life balance, why don't we
ask, "Where's the problem?"
Elliott: I had a graduate school professor explain
this to me. Economists are nothing but the high priest of
business. We are the keepers of the dogma.
Block: You run the same risk of the priesthood: a
dying profession. The church is having a hard time
getting priests now. It seems to me that the best jobs
pay the most. Rather than saying we compensate for the
suffering involved in labor, it seems like the worst jobs
are the lowest paying jobs.
Elliott: The economic concept is that you pay for
what you produce. You'll take the job if you believe in
compensation, or work for your disutility. But as a
businessman, I price your wage at how much you produce.
What do you give me?
Block: Maybe the problem is that we choose the
work because we have no way of measuring the value of the
relationship. It has no economic value. It's
unmeasureable.
Elliott: That may very well be, and I think if
that's what you want to say, then the argument is, "I
don't know my preferences very well."
Block: No, I do know my preferences. My preference
is to put energy into things that I can measure so that I
know I'm making progress. Why is there a compulsion about
measurability? Because it's rewarding to see what the
score is.
Kramer: People will always say their preference is
to spend more time with their family, and then there is
no work/family balance problem.
NFC: Free choice. We all made those choices. But
are people making that choice freely, or are they doing
so because, organizationally, their insecurity is so
threatened by it?
Block: If we invited a philosopher to join us, he
would say the decision to treat yourself as if you have
no choice is a choice.
Elliott: I've thought about that when I hear
people say, "I have no choice but to do this." There are
very few times in our lives when we don't have a
choice.
August 2000 NFC
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Issue Highlight -
Homeward Bound
