101-28_07 - Engle Memorial Lecture May 2 2000 Robert H...

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Unformatted text preview: Engle Memorial Lecture May 2, 2000 Robert H. Frank Most of us were taught from an early age not to worry about how our incomes compare with the incomes of others. This sensible advice stems from the observation that since there will always be others with more, focusing closely on income comparisons can’t help but generate reasons to feel unhappy. But suppose you were faced with a choice between the following hypothetical worlds: World A: You earn $110,000 per year, others earn $200,000 World B: You earn $100,000 per year, others earn $85,000. The income figures represent real purchasing power. Thus your higher income in World A would enable you to purchase a house that is 10 percent larger than the house you would be able to afford in World B, 10 percent more restaurant meals, and so on. No matter which world you choose, your relative position will not change in the future. Confronting a once-for-all choice between these two worlds, which one would you choose? Modern economic theory rests on the premise that World A is the uniquely correct choice. This theory assumes that people derive satisfaction primarily from the absolute quantity of goods and services they consume. On that measure, World A is better because it offers higher absolute consumption for every citizen. That fact notwithstanding, however, a substantial proportion of people confronted with this choice say they would opt for World B. Many economists appear reluctant to take seriously the concerns that might lead people to make this choice. On its face, this is a curious position for a profession whose practitioners are quick to endorse Jeremy Bentham’s dictum that “a taste for poetry is no better than a taste for pushpins.” If most people say they’d prefer World B, a genuine commitment to consumer sovereignty would appear to rule out any categorical claim that World A is necessarily best for all. My point is not that World B is a better world or that you should choose it. But if you understand why at least some people might seriously consider choosing World B, then none of the points I plan to make during my presentation today should seem mysterious. Let me begin by describing a purchase decision I confronted a few years ago. I had a gas grill that I'd bought in the 1980s. Although it had served me well for almost a decade, one part after another had begun to fail. First to go bad was the spark generator—the little button you push to generate the spark that fires up the gas. The grill still functions well enough without a spark generator. You simply turn on the gas, wait a few seconds, then throw a match in. (As you quickly discover, timing is very important here.) 1989 Sunbeam grill, $89 Next to fail was the sheet-metal baffle that sits atop the burners, whose purpose is to diffuse the heat across the grilling surface. Corrosion had produced a large hole in the middle of this plate, with the result that all the heat came rushing up through that one spot. You could work around that problem, too. You could work around that problem, too....
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This note was uploaded on 03/27/2008 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell.

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101-28_07 - Engle Memorial Lecture May 2 2000 Robert H...

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