Economic Theory and Economic Thought

Essays in Honour of Ian Steedman

John Vint, J. Stanley Metcalfe, Heinz D. Kurz, Neri Salvadori, Paul Samuelson

• Publisher: Routledge
• Year: 2010
• eBook ISBN: 9781135182991
• Topic: Business
• Subtopic: Business General
• Index: Business

Ian Steedman is recognised internationally as one of the leading economic theorists of his time and has made major contributions to the development of economic theory and economic thought, as substantiated by his work on Marx, Sraffa, Marshall, Jevons and Wicksteed. His contributions to economic theory include his work on time, international trade, capital theory and growth and distribution. This collection reflects the wide ranging interests of Ian Steedman and is a tribute to his outstanding contributions.

This edited collection brings together twenty two new essays by distinguished economists from around the world. The papers cover a wide range of topics including; international trade – an area in which Steedman has made significant contributions; Sraffa, the history of economic thought and theoretical papers – including Faustian Agents and market failure in waste production.

The essays in this book will be an invaluable source for economists interested in economic theory or in the evolution of economic thought. It will also be of interest to postgraduate and research students in economic theory and the history of economic thought.

John Vint is Professor of Economics at Manchester Metropolitan University, UK. J. Stanley Metcalfe is Professor of Economics at the University of Manchester, UK. Heinz D. Kurz is Professor of Economics at the University of Graz, Austria. Neri Salvadori is Professor of Economics at the University of Pisa, Italy. Paul Samuelson is Professor of Economics at the Massachusetts Institute of Technology, USA.

Part I
The significance of time

1
Consumption takes time

Some implications for happiness

Amitava Krishna Dutt

Introduction

Ian Steedman’s recent book on consumption and time has pointed out that, despite the early recognition by Gossen of the fact that consumption requires time, the theory of the consumer has almost entirely assumed away the issue. Steedman’s book has also developed a series of simple, elegant and insightful models to examine the implications of the fact that it takes time to consume, and to show how some basic implications of consumer theory have to be altered by taking account of this simple fact.

This chapter follows Steedman’s lead by pursuing some further implications of the fact that consumption takes time. It departs from Steedman in three important respects. First, unlike Steedman, who assumes that consumers fully take into account the constraints imposed by time in making their optimizing decisions, it recognizes the fact that consumers may not be completely “rational” in their choices, because they are not fully aware of the fact that it takes time to enjoy the pleasures of consumption, and they may therefore choose suboptimal consumption bundles. Second, while Steedman assumes that consumption generally requires time, it takes into account the fact that not all types of consumption take time in the same way (some goods may take up little or no time), and examines the implications of this fact for consumption decisions. Finally, while Steedman’s focus is on the behavioral implications of taking consumption time into account, this chapter focuses on its implications for the utility or happiness of the consumer.

A substantial body of evidence has been produced to show that despite significant increases in consumption and income, the level of experienced utility or happiness, as reported by the consumer, has in fact not increased in many rich countries, and the same appears to be generally true across countries if we concentrate on rich countries (see Easterlin, 1995, 2000, Frey and Stutzer, 2002, Layard, 2005). There has been some analysis of the implications of the fact that consumption takes time for happiness. The pioneering contribution is that of Linder (1970) who argues that economic growth leads to a scarcity of time, which gives consumers less time for consumption and thus makes them “harried”. Linder’s book contains some simple models of consumption behavior in which it is assumed that consumption takes time, but does not explicitly analyze the consumption-happiness relationship. Most of the discussion on consumption and happiness, however, relates to factors other than consumption time, such as the role of advertising, relative consumption and status, and consumer debt (see Schor, 1998, Frank, 1999).

The rest of this chapter proceeds as follows. First, I consider a one-commodity case to show that although consumption time can explain why increases in consumption may not make people happier, it requires a form of consumer irrationality. I also explore to what extent consumers can be irrational in this sense. Second, I consider a two-commodity case to argue that the shortage of time may imply that even fully rational consumers may be no happier when they consume more, because they purchase goods which, while requiring less time to consume, fail to increase happiness in the long run. Third, I discuss some other considerations relevant to the analysis of consumption time. This is followed by my conclusion.

A one-commodity case

My point of departure is the simplest model of consumer choice which takes time into account, the model of labor-leisure choice. The consumer chooses between labor and leisure to maximize his or her utility. Leisure yields utility directly, while labor results in income and hence consumption, which yields utility, and the consumer effectively chooses between leisure and consumption. In this approach no time is taken to consume.

To allow consumption to take time we assume that the utility obtained from consumption depends positively on the amount of time spent on it. Thus we assume

c=c(cg, l),

(1)

where the flow of consumption services, c, requires both consumer goods, c_g, and time, which we assume to depend positively with the amount of leisure time, l. Otherwise we follow the standard model, so that

u=u(c, l),

(2)

cg y,

(3)

y=f(n, A),

(4)

and

n+l=1.

(5)

Utility depends on consumption and leisure, the total time available to the consumer is normalized to unity, income is assumed to depend positively on hours worked, n, and exogenously given productivity, A, and leisure time yields utility directly as well (even if it is not used for consumption).¹

The behavior of the utility-maximizing consumer can be examined by considering his or her choice of leisure by assuming continuous and differentiable functions for (1), (2) and (4). Substituting from (1), (3) with equality, (4) and (5) into equation (2) we obtain

u=u(c (f (1-l, A), l), l).

The consumer’s optimal choice of leisure may be found by setting the derivative of utility with respect to leisure, l, to zero, or

du/dl=u1·[-c1·f1+c2]+u2=0

where the partial derivative of a function, x(), with respect to its ith argument is denoted by x_i. Economic expansion, as captured by an increase in A is seen, by the envelope theorem, to be given by

du/dA=u1·c1·f2,

which is positive, so that technological change leads to an increase in utility. The effect on the consumption of goods, c_g, of this expansion, however, is unclear. Thus, although c_g may rise with technological change and utility, it need not do so. This decline in consumption with technological change is not a possibility in the simple case in which there is no consumption time, as long as consumption (which is the same as the consumption good) is normal, and if the marginal product of labor increases with technological change.

To show that the amount of the consumption good purchased may fall as a result of technological change when consumption takes time, consider the simple special case of equation (1) of the fixed coefficients type,²

(1')

where

is the amount of time required for a unit of consumption, and where the utility function exhibits standard properties of smooth substitution and normality of consumption and leisure. We also assume tha...

Table of contents

• Routledge studies in the history of economics
• Contents
• Preface
• Contributors
• Acknowledgements
• Introduction
• Part I The significance of time
• Part II The theory of international trade
• Part III Staffian themes
• Part IV History of economic thought and methodology
• Ian Steedman’s publications
• Index