De Gustibus Non Est Disputandum

George J. Stigler; Gary S. Becker

The American Economic Review, Vol. 67, No. 2. (Mar., 1977), pp. 76-90.

Stable URL:
http://links.jstor.org/sici?sici=0002-8282%28197703%2967%3A2%3C76%3ADGNED%3E2.0.CO%3B2-8

The American Economic Review is currently published by American Economic Association.

Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at
http://www.jstor.org/about/terms.html. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained
prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in
the JSTOR archive only for your personal, non-commercial use.

Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at
http://www.jstor.org/journals/aea.html.

Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed
page of such transmission.

The JSTOR Archive is a trusted digital repository providing for long-term preservation and access to leading academic
journals and scholarly literature from around the world. The Archive is supported by libraries, scholarly societies, publishers,
and foundations. It is an initiative of JSTOR, a not-for-profit organization with a mission to help the scholarly community take
advantage of advances in technology. For more information regarding JSTOR, please contact [email protected].

http://www.jstor.org
Tue Aug 14 02:30:04 2007
 De Gustibus Non Est Disputandum

The venerable admonition not to quarrel over the discussion as soon as the behavior of tastes
tastes is commonly interpreted as advice to ter- becomes important-and turns his energies to
minate a dispute when it has been resolved into a other problems. On our view, one searches,
difference of tastes. presumably because there often long and frustratingly. for the subtle forms
is no further room for rational persuasion. Tastes that prices and i n c c ~ ~ itake
e s in explaining differ-
are the unchallengeable axioms of a man's be- ences among lnen and periods. If the latter ap-
havior: he may properly (usefully) be criticized proach yields more useful results, it is the proper
for inefficiency in satisfying his desires, but the choice. The establishment of the proposition that
desires thelnselves are ciuta. Deplorable tastes one may usefully treat tastes as stable over time
-say. for arson-may be countered by coercive and similar among people is the central task of
and punitive action, but these deplorable tastes, this essay.
at least when held by an adult, are not capable of The ambitiousness of our agenda deserves
being changed by persuasion. emphasis: we are proposing the hypothesis that
Our title seerns to us to be capable of another widespread and/or persistent hurnan behavior
and preferable interpretation: that tastes neither can be explained by a generalized calculus of
change capriciously nor differ importantly be- utility-maximizing behavior, without introduc-
tween people. On this interpretation one does not ing the qualification "tastes remaining the
argue over tastes for the same reason that one same." It is a thesis that does not permit of direct
does not argue o\;er the Rocky Mountains-both proof because it is an assertion about the world.
are there. will be there next year, too, and are not a proposition in logic. Moreover, it is possi-
the same to all men. ble allnost at random to throw LIPexamples of
The difference between these two viewpoints phenomena that presently defy explanation by
of tastes is fundamental. On the traditional view. this hypothesis: Why do we have inflation? Why
an explanation of economic phenomena that are there few Jews in farming?' Why are societ-
reaches a difference in tastes between people or ies with polygynous families so rare in the mod-
times is the terminus of the argument: the prob- ern eraL?Why aren't blood banks responsible for
lem is abandoned at tlzispoir~tto whoever studies the quality of their product'? If we could answer
and explains tastes (psychologists'? anthropolo- these questions to your satisfaction, yo11 would
gists? phrenologists'? sociobioiogists?). On our quickly produce a dozen more.
preferred interpretation, one never reaches this What we assert is not that we are clever
impasse: the econoniist continues to search for enough to make illuminating applications of
differences in prices or inco~nesto explain any utility-maximizing theory to all important
differences or changes in behavior. phenomena-not even our entire generation of
The choice between these two views of the econoniists is clever enough to do that. Rather.
role oftastes in economic theory must ultirnately we assert that this traditional approach of the
be made on the basis oftheir comparative analyt-
ical productivities. On the conventional view of 'Our lamented friend Reuben Kes\el offered an attracti~e
explanation: since J e u s h a w been persecuted ao often and
inscrutable. often capricious tastes. one drops forced to flee to other countries, they have not invested In
irnrnobile land, but in mobile human capital-business
"Cniversity of Chicago. We habe had helpful cornmenth skills, education. etc.-that \vould autornaticall) go uith
from hlicharl Bordar~ch.Gilbert Gher. Jarneb Hcckman. them. Of course. someone might counter with the more
Peter Pa\higian. Sam Peltrrnan. Donald Wittrnan, and ba\ic query: but why are the) J e u s . and not Christians or
participants In the Workshop on Industr~alOrganbration. Mos le~ni'?
76
\OL. 67 \O 2 STIGLER A'VD BECKER: DE GL'STIBLS 77

economist offers guidance in tackling these where Z i are the comnlodity objects of choice
problems-and that no other approach of entering the utility function, ,f; is the production
remotely comparable generality and power is function for the ith commodity. X , i is the quan-
available. tity of the jth market good or service used in the
To support our thesis we could offer samples production of the ith commodity, t j i is the jth
of phenomena we believe to be usefully ex- person's own time input. S i the jth person's
plained on the assuniption of stable, well- human capital, anti Y i represents all other inputs.
behaved preference functions. Ultimately. this is The Z , have no market prices since they are
indeed the only persuasive method of supporting not purchased or sold. but do have "shadow"
the assumption. and it is legitimate to cite in sup- prices determined by their costs of production.
post all of the existing corp~lsof successful If~f,were homogeneous of the first degree in the
economic theory. Here we shall undertake to X,ii and t j , , marginal and average costs would be
give this proof by acconiplishment a special and the sarne and the shadow price of Z i would be
li~nitedinterpretation. We take categories of be-
havior cotnmonly held to demonstrate changes
in tastes or to be explicable only in terms of such
changes. and show both that they are recon-
cilable ~vithour assumption of stable preferences
and that the refortnulation is illuniinating.
where p, is the cost of X i . is the cost of t j .
I. The New Theory of Consumer Choice and a j iand f i j i are input-output coefficients that
The power of stable preferences and utility depend on the (relative) set of p and w.S, and
maximization in explaining a wide range of be- Y , . The numerous and varied determinants of
havior has been significantly enhanced by a these shadow prices give concrete expression to
recent reformulation of consumer t l ~ e o r yThis
.~ our earlier statement about the subtle forms that
refomlitlation transfornis the family from a prices take in explaining differences arnong
passive maximizer of the utility frc)ni market Inen and periods.
purchases into an active maximizer also engaged The real incolne of a household does not
in extensive production and investment activi- simply equal its money income deflated by an
ties. In the traditional theory, households maxi- index of the prices of market goods, but equals
mize a utility function of the goods and services its full income (which includes the value of
bought in the marketplace, whereas in the refor- "time" to the househo1d)Veflated by an index
mulation they maximize a utility function of of the price. n,. of the produced commodities.
objects of choice, called commodities, that they Since full income and commodity prices depend
produce with market goods, their own tirne. their on a variety of factors, incomes also take subtle
skills, training and other hurnan capital, and forms. Our task in this paper is to spell out some
other inputs. Stated fc~rrnally,a household seeks of the fornis prices and full income take.
to maximize
11. Stability of Tastes and "Addiction"
Tastes are frequently said to change as a result
with of consuming certain "addictive" goods. For
example, smoking of cigarettes, drinking of
alcohol, injection of heroin, or close contact
with some persons over an appreciable period of
'An expobition of this reformulation can be lound in
Robcrt Michael and Becker. Thi\ exposition en~pha\izek .'Full income is the ~naxinluinnionrq income that a house-
the capacity uf the refornlulation to generate man> irnpiica- hold could achieve bq an dppropriate allocation of its time
tions about bchacinr that are con\lstent with stable taste\. and other resources.
78 THE AMERICAN ECONOMIC REVIEW .MARCH 1977

time, often increases the desire (creates a crav- An increase in this music capital increases the
ing) for these goods or persons, and thereby productivity of time spent listening to or devoted
cause their consumption to grow over time. In in other ways to music.
utility language, their marginal utility is said to In order to analyze the consequences for its
rise over time because tastes shift in their favor. consumption of "the more good music a man
This argument has been clearly stated by Alfred hears," the production and consumption of
Marshall when discussing the taste for "good" music appreciation has to be dated. The amount
music: of appreciation produced at any moment j, M , .
There is however an implicit condition would depend on the time allocated to music and
in this law [of diminishing marginal util- the music human capital at j : tmJ and S f n j ,re-
ity] which should be made clear. It is that spectively. The latter in turn is produced partly
we do not suppose time to be allowed for through "on-the-job" training or "learning by
any alteration in the character or tastes of doing" by accumulating the effects of earlier
the man himself. It is therefore no ex-
ception to the law that the more good music appreciation:
music a man hears, the stronger is his taste
for it likely to become . . . [ p . 941
By definition, the addiction is beneficial if
We believe that the phenomenon Marshall is
trying to explain, namely that exposure to good
music increases the subsequent demand for good
music (for some persons!), can be explained
with some gain in insight by assuming constant The term Ej measures the effect of education
tastes, whereas to assume a change in tastes has and other human capital on music appreciation
been an unilluminating "explanation." The skill, where
essence of our explanation lies in the accumu-
lation of what might be termed "consumption
capital" by the consumer, and we distinguish
"beneficial" addiction like Marshall's good and probably
music from "harmful" addiction like heroin.
Consider first beneficial addiction, and an un-
changing utility function that depends on two
produced commodities: We assume for simplicity a utility function
that is a discounted sum of functions like the one
in equation (4). where the M and Z commodities
where M measures the amount of music "appre- are dated, and the discount rate determined by
ciation" produced and consumed. and Z the pro- time preference.The optimal allocation of con-
duction and consumption of other commodities. sumption is determined from the equality be-
Music appreciation is produced by a function tween the ratio of their marginal utilities and the
that depends on the time allocated to music (t,,,), ratio of their shadow prices:
and the training and other' human capital con-
ducive to music appreciation (S,,) (other inputs
are ignored):
The shadow price equals the marginal cost
of adding a unit of commodity output. The
We assume that marginal cost is complicated for music appre-
ciation M by the positive effect on subsequent
music human capital of the production of music

and also that ? A consistent application of the assumption of stable pref-

erences implies that the discount rate is zero: that I S , the
absence of time preference (see the brief discussion in
Section VI.)
VOL. 67 ,VO. 2 STZGLER AND BECKER: DE GUSTIBC'S 79

appreciation at any moment j. This effect on value of the saving in future time inputs from the
subsequent capital is an investment return from effect of the production of M in j on subsequent
producing appreciation at j that reduces the cost music capital.
of production at j. It can be shown that the mar- With no addiction, A; = 0 and equation (8)
ginal cost at j equals5 reduces to the familiar marginal cost formula.
btld t nL; Moreover, A; is positive as long as music is
(8) rnIj=-- beneficially addictive, and tends to decline as
d M;
j increases, apprcxiching zero as j approaches
dSrnjfi
.-.- 1 n. The term W I M P , , declines with age for a
dMj (i + r)' given time input as long as music capital grows
with age. The tenn A; may not change so much
with age at young ages because the percentage
decline in the number of remaining years is small
where w is the wage rate (assumed to be the same at these ages. Therefore, .rrfll would tend to de-
at all ages), r the interest rate, n the length of cline with age at young ages because the effect
life, and A, the effect of addiction, measures the on the marginal product of the time input would
tend to dominate the effect on A. Although n-,,
'The utility function might not always decline at other ages, for the
V= 2 u ' U { M , Z,)
present we assume that .rr, declines continu-
,= 1 ously with age.
1s marc~m~zed
wbject to the c o n s t r ~ ~ ~ n t s If n-, does not depend on age, the relative price
M , = M(l,,,, . S ,t, ): %, = %(*,, I?,) of music appreciation would decline with age;
then by equation (7).the relative consumption of
S",, = h ( M,-,, M , - 2 . . . . , E,)
music appreciation would rise with age. On this
interpretation, the (relative) consumption of
music appreciation rises with exposure not be-
and rtCJ + r ,t, + tz, = r, cause tastes shift in favor of music, but because
where r,, is hour5 worked In the jth period. and b, i\ propert) its shadow price falls as skill and experience in
Income In that perlod B\ substitution one deriies the full the appreciation of music are acquired with
health constraint:
exposure.
p x , -t ~ ( f , +, ~t z , ) -
C (l+rlJ
- 2w( 1 f +f rh), ] An alternative way to state the same analysis
is that the marginal utility of time allocated to
.Ilax~mizationof V hith respect to M , and Z, subject to music is increased by an increase in the stock of
the production functions and the full \health constraint gives music ~ a p i t a lThen
. ~ the consumption of music
the first-order cond~tlons
appreciation could be said to rise with exposure
au A ~ d t . A because the marginal utility of the time spent on
aZ, (1 + r)' music rose with exposure, even though tastes
were unchanged.
The effect of exposure on the accumulation
of music capital might well depend on the level
- A
r,,, of education and other human capital, as in-
( 1 + r)' J

Since. howe\er. dicated by equation (6). This would explain why

educated persons consume more "good" music
ii.e., music that educated people like!) than
then T h e marginal utility of time allocated to music at J in-
clude\ the utility from the Increase in the tuture stock of
dt ,,,,+,= 3.44,-, ldM,A, d s ~ ~ ~ , - , music capital that result5 froin an ~ncrease ~n the time
as,,,+,/ d z allocated at 1. An argument s ~ m i l a tro the une de\rloped tor
-

dMJ i. i
the price of music appreciation \how\ that the marglnal
B) suh,titut~on into the detinition ot rr,,,,, equation t 8) utility ot time would tend to ri5e with age, at least at younser
follow\ immediatel) ages
80 T H E 4 WERICA \ ECOVO W C REVIEW M 4 R C H 1977

other persons do. capital fell at older ages.

Addiction lowers the price of mu,ic apprecia- Using the same arguments developed for
tion at \,ounger ages without any comparable beneficial addiction, we can show that all the re-
effect on the productivity of the time spent on sults are reversed for harmful addiction,' which
music at these ages. Therefore, addiction would is defined by a negative sign of the derivatives
increase the time spent on music at younger in equation (6):
ages: some of the time would be considered an
investment that increases future music capital. "I < 0. all v in (6)
dHj-l.
Although the price of music tends to fall with
age, and the consumption of music tends to rise, where H is a harmfully addictive commodity.
the time spent on music need not rise with age An increase in consumption at any age reduces
because the growth in music capital means that the stock of consumption capital available sub-
the consumption of music could rise even when sequently, and this raises the shadow price at all
the time spent fell with age. The time spent ages.d The shadow price would rise with age and
would be more likely to rise. the more elastic exposure, at least at younger ages, which would
the demand curve for music appreciation. W e induce consumption to fall with age and expo-
can express this result in a form that will strike sure. The inputs of goods and time need not
many readers as surprising: namely, that the fall with exposure, however, because consump-
time (or other inputs) spent on music apprecia- tion capital fails with exposure: indeed, the
tion is more likely to be addictive-that is. to inputs are likely to rise with exposure if the
rise with exposure to music-the more, not less, comniodity's demand curve were inelastic.
elastic is the demand curve for music appre- T o illustrate these conclusions, consider the
ciation. commodity "euphoria" produced with input of
The stock of music capital might fall and the heroin (or alcohol or amphetamines.) An in-
price of music appreciation rise at older ages crease in the consumption of current euphoria
because the incentive to invest in future capital raises the cost of producing euphoria in the fu-
would decline as the number of remaining years ture by reducing the future stock of "euphoric
declined. whereas the investment required capital." The effect of exposure to euphoria on
simply to maintain the capital stock intact would the cost of producing future euphoria reduces
increase ax the stock increased. If the price rose, the consumption of euphoria as exposure con-
the time spent on music would fall if the tinues. If the demand c u n T efor euphoria were
demand curve for music were elastic. Conse- sufficiently inelastic. however, the use of heroin
quently, our analysis indicates that the observed would grow with exposure at the same time that
addiction to music may be stronger at younger euphoria fell.
than at older ages. Note that the amount of heroin used at
These results for music also apply to other younger ages would be reduced because of the
commodities that are beneficially addictive. negative effect on later euphoric capital. Indeed,
Their prices fall at younger ages and their con- no heroin at all might be used only because the
sumption rises because consumption capital is harmfully addictive effects are anticipated. and
accumulated with exposure and age. The time discourage any use. Note further that if heroin
and goods used to produce an addictive coni-
;In some wn!\. our nnaljsis of beneticlal and h a m ~ i u l
modity need not rise with exposure. even though addiction i \ a hpecial cahe of the analy\~$o f benetic~nland
consumption of the commodity does; they are dc:ri~nt.ntaljoint production in Michael Gros\mnn
more likely to rise with exposure, the more *Instedd of equntlon (8). one has
elastic is the demand curve for the commodity.
Even if they rose at younger ages, they might
decline eventually as the stock of consumption
\ 01,. 67 10. 2 STIGLER .4.VD BECKER: DE GCSTIBLS 81

were used even though the subsequent adverse addictive precisely hrc.il~r.sro f the insensiti~it),
consequences were accurately anticipated, the to price changes.
utility of the user would be greater than it would An exogenous rise in the price of addictive
be if' he were prevented from using heroin. Of goods o r time, perhaps due to an excise tax, such
course, his utility would be still greater if as the tax on cigarettes and alcohol, o r to restric-
technologies d e ~ e l o p e d(methadone'?) to reduce tions on their sale. such as the i~nprisonnientof
the harmfully addictive effects of e u p h ~ r i a . ~ dealers in heroin. would have a r e l a t i ~ e l ysmall
Most interestingly, note that the use of heroin effect on their use by addicts if these are harm-
would grow with esposure at the same time that fully addictive goods, and a relatively large
the amount of euphoria fell, if the demand curve effect if they are beneficially addictive. That is,
for euphoria and thus for heroin were sufficiently excise taxes and iniprisonment mainly transfer
inelastic. That is. addiction to heroin-a growth resources away from addicts if the goods are
in use with exposure-is the result of an in- harmfully addictive, and mainly reduce the con-
elastic demand for heroin, rzor, as commonly sumption of addicts if the goods are beneficially
argued, the cause of an inelastic demand. In the addictive.
same way, listening to music or playing tennis The extension of the capital concept to invest-
would be addictive if the demand cunles for ment in the capacity to consume more efficiently
music o r tennis appreciation were sufficientl) has numerous other potential applications. For
elastic; the addiction again is the result, not the example, there is a fertile field in consumption
cause, of the particular elasticit!. Put differ- capital for the application of the theor!. of divi-
ently, if addiction were surmised (partly be- sion of labor among family members.
cause the input of goods or time rose with age).
but if it were not clear whether the addiction 111. Stabilit? ot Tastes and Custom and Tradition
were harmful or beneficial. the elasticity of A "trad~t~onal"q~dllhcdtlonto the \cope of
demand could be used to distinguish between economlc theor) is the alleged powerful hold
them: a high elasticity suggests beneficial and a o \ e r human b e h ~ ~ i of
o r custom dnd t r a d ~ t ~ o n
low elasticit) suggests hannful addiction. "' An ekcellcnt 4tdtement In the context of the be-
We d o not have to assume that exposure to hdbior ot ruler\ 1s that ot John Stuart M11l
euphoria changes tastes in order to understand It is not true that the actions even of
why the use of heroin grows with exposure, or average rulers are wholly. or anything ap-
why the amount used is insensitive to changes in proaching to wholly, determined by their
its price. Even with constant tastes, the amount personal interest, or even by their own
used would grow with exposure, and heroin is opinion of their personal interest. . . . I
insist on]) on what is true of all rulers.
viz., that the character and course of their
YThat I \ . it new technolog) reduced and perhap\ e\en actions is largely influenced (independ-
changed the \ i p of the deri\ati\e, in equation (9).Ll'e
\tiould 5tate explicitl), to a\oid an! m~aunderstnnding.that
ently of personal calculations) bq the
"harmful" means on]) that the d e r ~ \ n t i \ e sin (91 are nega- habitual sentiments and feelings. the gen-
tl\e. and not that the addiction harms others. nor, as \be eral modes of thinking and acting, which
ha\e ju5t ind~cated.that 11 I \ unwlse for addicts to consume prevail throughout the coniniunit! of
such commodities. which they are members; as well as by the
"'The elastic~t) of demand can be e\timated from the feelings, habits, and modes of thought
effects of change\ in the price\ of Input\. For eramplt.. ~t a which characterize the particular class in
cornmodit\'\ production function \+ere hon~o:reneou\ of that cornmunit) to which they themselves
degree one. and if all ~ t hfuture d, well a\ pre\ent input prlcei belong. . . . They are also much in-
ro\e h! the \ame known percentafe, the ela\tic~t)of demand
tor the commod~t)could be ehtlnlated from the decl~neIn
fluenced by the maxims and traditions
the Input\. Thrretore the d~at~nction het\been beneficl~lland w,hich have descended to them from other
harmful a d d ~ c t ~ oI \n opernt~onal,the\e ~ndependentl! e\ti- rulers. their predecessors; which maxims
mated commod~t)elastlcitic\ could be uhed, a\ in the text. and traditions have been known to retain
to deternilne u hether an add~ction\\as harmtul or beneficial an ascendancy during long periods, eLen
 THE AMERIC84S ECOSO.WIC REVIEW WARCH 1977

in opposition to the private interests of the chase to obtain the louest possible price,& con-
ruler\ for the time being. [ p . 4841 sistent with the cost of search. Then is a ,;
function of the amount of search s (assumed to
The specific political behavior that contradicts
be the same at each act of purchase):
"personal interest" theories is not clear from
Mill's statement. nor is it much clearer in similar (10) at = f ( ~ )f, ' ( s ) < 0
statements by others applied to firms or house-
where the total cost of s is C(s).
holds. Obviously, stable behavior by (say)
2. T o search less frequently (but usually
households faced with stable prices and incomes
more intensively), relying between searches
-or more generally a stable environment-is
upon the outcome of the previous search in
no contradiction since stability then is implied
choosing a supplier. Then the price pt will be
as much by personal interest theories as by
higher (relative to the average market price), the
custom and tradition. On the other hand. stable
longer the period since the previous search (at
behavior in the face of changing prices and in-
time t,,),
comes might contradict the approach taken in
this essay that assumes utility maximizing with
stable tastes.
Ignoring interest, the latter method of purchase
Neve1-theless. we believe that our approach
will have a total cost over period T determined
better explains when behavior is stable than d o
approaches based on custom and tradition, and by
I ) K searches (all of equal intensity) at
can at the same time explain how and when be-
cost K C(s).
havior does change. Mill's "habils and modes
2) Each search lasts for a period T I K ,
of thought." or his "maxims and traditions
within which r = T I K purchases are made, at
which have descended." in our analysis result
cost r 6, where p is the average price. Assume
from investment of time and other resources in
that the results of search "depreciate" (prices
the accurnulation of knowledge about the en-
appreciate) at rate 6. A consumer minimizes his
vironment. and of skills with which to cope
combined cost of the commodity and search over
with it.
the total time period: the minimizing condition
The making of decisions is costly. and not
is"
simply because it is an activity which some peo-
ple find unpleasant. In order to make a decision "The price of the rth purchase w~thinone of the K search
one requires infomiation. and the infonnation perioda i, p , = ; ( I + 6 ) ' - ' . Hence
must be analyzed. The costs of searching for
information and of applying the information to a
new situation are such that habit is often a more
efficient way to deal with moderate or temporary The total cost to be nlininii~ed1s
changes in the environment than would be a full.
apparently utility-maximizing decision. This is
precisely the avoidance of what J. M. Clark
termed the irrational passion for dispassionate R) takine :r second-order approximation to ( 1 + 6)'. \ve get
rationality.
A simple example of economizing on infor-
mation by the habitual purchase from one source
hlln~rnlzinewith respect to r. yl\es
will illustrate the logic. .4 consumer buys one
unit of commodity X in each unit of time. He
pays a price y , at a time t. The choices he faces
are :
I . T o search at the time of an act of pur-
VOL. 67 .\'O. 2 STZGLER A N D BECKER: DE GUSTZBUS 83

to the old environment. Consequently, they need

not have different preferences or motivation o r
be intrinsically more flexible in order to be more
In this simple model with r purchases between affected by a change in the environment: they
successive searches, r is larger the larger the simply have greater incentive to invest in knowl-
amount spent on search per dollar spent on the edge and skills attuned to the new environment.
commodity ( C / j ) ,and the lower the rate of ap- Note that this analysis is similar to that used
preciation of prices (6). If there were full search in the previous section to explain addictive be-
on each individual act of purchase, the total cost havior: utility maximization with stable pref-
could not be less than the cost when the optimal erences, conditioned by the accumulation of
frequency of search was chosen. and might be specific knowledge and skills. One does not need
much greater. one kind of theory to explain addictive behavior
When a temporary change takes place in the and another kind to explain habitual o r custom-
environment, perhaps in prices o r income, it
ary behavior. The same theory based on stable
generally would not pay to disinvest the capital preferences can explain both types of behavior.
embodied in knowledge o r skills, o r to accumu- and can accommodate both habitual behavior
late different types of capital. As a result, be- and the departures therefrom.
havior will be relatively stable in the face of
temporary changes. 1V. Stability of Tastes and Advertising
A related situation arises when an unexpected Perhaps the most important class of cases
change in the environment does not induce a in which "change of tastes" is invoked as an
major response immediately because time is re- explanation for economic phenomena is that in-
quired to accumulate the appropriate knowledge volving advertising. The advertiser "per-
and skills. Therefore, stable preferences com- suades" the consumer to prefer his product, and
bined with investment in "specific" knowledge often a distinction is drawn between "persua-
and skills can explain the small o r "inelastic" sive" and "informative" advertising. l' John
responses that figure so prominently in short-run Kenneth Galbraith is the most famous of the
demand and supply curies. economists who argue that advertising molds
A permanent change in the environment, per- consumer tastes:
haps due to economic development, usually
causes a greater change in the behavior of young These [institutions of modern advertis-
ing and salesmanship] cannot be recon-
than of old persons. The common interpretation ciled with the notion of independently
is that young persons are more readily seduced determined desires for their central func-
away from their customs and traditions by the tion is to create desires-to bring into
glitter of the new (Western?) environment. O n being wants that previously did not exist.
our interpretation, young and old persons re- This is accomplished by the producer of
the goods or at his behest.-Outlays for
spond differently, even if they have the same the manufacturing of a product are not
preferences and motivation. T o change their more important in the strategy of modern
behavior drastically, older persons have to either business enterprise than outlays for the
disinvest their capital that was attuned to the old manufacturing of demand for the product.
environment, or invest in capital attuned to the [pp. 155-561
new environment. Their incentive to d o so may
"'The di\t~nction.i t in tact one c \ l \ t \ . between p t r \ u a \ i \ c
be quite weak, however, because relatively few
and ~ntorm;itl\ea d \ c n i s ~ n g~ n u \be
t oncof p u ~ ~ o \ e o r e t t c c t .
years remain for them to collect the returns on not 01 content. A \ l n ~ p l e ,accuratel! stated tact ("I oltcr
new investments, and much human capital can gou this genulne SI bill for 10 tenth") can be highI> pcr-
only be disinvested slowly. \uasi\e: the mo\t b i ~ n r r eclaim ( " I t Napoleon could h a ~ e
bought our machine gun, he w o ~ ~ hl da ~ edefeated Wellinp-
Young persons, on the other hand, are not so ton") contain4 some information (machine guns \rere not
encumbered by accumulations of capital attuned a ~ a i l a b l ein 18141.
84 THE 4 WERICA Y ECOYOWIC REVIEW MARCH I977

We shall argue, in direct opposition to this view, were independent of its behavior, the shadow
that it is neither necessary nor useful to attribute price of Z, the marginal cost of .r, would simply
to advertising the function of changing tastes. be the expenditure on x required to change Z by
A consumer may indirectly receive utility one unit. From equation (13). that equals
froni a market food. yet the utility depends not
only on the quantity of the good but also the
consutiier's knowledge of its true or alleged
properties. If he does not know whether the where p,. is the price of x.
berries are poisonous. they are not food; if he .4n increase in advertising may lower the
does not know that they contain vitamin C. they commodity price to the household (by raising g ) ,
are not consumed to prevent scurvy. The and thereby increase its demand for the com-
quantity of information is a con~plexnotion: its modity and change its demand for the firm's out-
degree of accuracy, its multidimensional prop- put, because the household is made to believe-
erties. its variable obsolescence with time are correctly or incorrectly-that it gets a greater
all qualities that make direct measurement of output of the commodity from a given input of
information extremely difficult. the advertised product. Consequently, advertis-
How can this elusive variable be incorporated ing affects consumption in this formulation not
into the theory of demand while preserving the by changing tastes, but by changing prices. That
stability of tastes? Our approach is to continue to is. a movement along a stable demand curve for
assume. as in the previous sections, that the commodities is seen as generating the apparently
ultimate objects of choice are commodities pro- unstable demand curves of market goods and
duced by each household with market goods, other inputs.
own time, knott+lrrige,and perhaps other inputs. More than a simple change in language is
We now assume, in addition, that the knowl- involved: our formulation has quite different
edge. whether real or fancied, is produced by implications froni the conventional ones. To
the advertising of producers and perhaps also the develop these implications. consider a firm that
own search of households. is determining its optimal advertising along with
Our approach can be presented through a de- its optimal output. We assume initially that the
tailed analysis of the simple case where the out- commodity indirectly produced by this firm
put .r of a particular firrn and its advertising A are (equation ( 1 2 ) ) is a perfect substitute to con-
the inputs into a commodity produced and con- sumers for commodities indirectly produced by
sumed by households: for a given household: many other firms. Therefore, the firm is per-
fectly competitive in the commodity market, and
could (indirectly) sell an unlimited amount of
where i ) Z / i ~ x> 0, d Z / h A > 0, E is the human this commodity at a fixed commodity price. Ob-
capital of the houshold that affects these mar- serve that a firm can have many perfect sub-
ginal products, and y are other cariables. pos- stitutes in the commodity market even though
sibly including advertising by other firms. few other firms produce the same physical
Still more simply. product. For example, a firm may be the sole
designer of jewelry that contributes to the social
prestige of consumers, and yet compete fi~lly
where aR/aA = g ' > 0 and i)"/dA2 < 0. with many other products that also contribute to
With A , E, and y held constant. the amount of prestige: large automobiles, expensive furs,
the commodity produced and consumed by any fashionable clothing. elaborate parties, a re-
household is assumed to be proportional to the spected occupation, etc.
amount of the firm's output used by that house- If the level of advertising were fixed, there
hold.'" If the advertising reaching any household would be a one-to-one correspondence between
'"St;rtcd differenti). Z i \ iic~rriogeneou:,of the firht degree the price of the commodity and the price of the
111 r alone firm's output (see equation (14)). If n-, were
VOl.. 67 NO. 2 STIGLER AND BECKER: DE GUSTIBUS 85

given by the competitive market. p , would marginal revenue is determined by the level of
then also be given. and the firm would find its output and the increase in product price "in-
optimal output in the conventional way by duced" by an increase in advertising. .4lthough
equating rnarginal cost to the given product the commodity price is fixed, an increase in ad-
price. There is no longer such a one-to-one vertising increases the firm's product price by an
correspondence between err, and p,. , however, amount that is propol-tional to the increased
when the level of advertising is also a variable. capacity (measured by g ' ) of its product to con-
and even a firm faced with a fixed commodity tribute (at least in the minds of consumers) to
price in a perfectly competitive cornmodity cornrnodity output.
market could sell its product at different prices In the conventional analysis, firnis in perfectly
by varying the level of advertising. Since an in- competitive markets gain nothing from advertis-
crease in advertising would increase the com- ing and thus have no incentive to advertise
modity output that consumers receive from a because they are assumed to be unable to differ-
given amount of this firm's product, the price of entiate their products to consumers who have
its product would then be increased relative to perfect knowledge. In our analysis, on the other
the fixed commodity price. hand, consumers have imperfect information,
The optimal advertising, product price, and including misinformation. and a skilled adver-
output of the firrn can be found by niaxirnizing tiser might well be able to differentiate his
its incorne product from other apparently similar products.
Put differently. advertisers could increase the
( 15) I = P , ~ X- T C ( X ) - A p , value of their output to consumers without in-
where X is the firm's total output, TC its costs creasing to the same extent the value of the out-
of production other than advertising. and p , the put even of perfect competitors in the c.ornrnodir>
(constant) cost of a unit of advertising. By sub- market. T o simplify. we assume that the value of \
stituting from equation (14). 1 can be written as competitors' output is unaffected. in the sense
that the commodity price (more generally, the
commodity demand curve) to any firm is not
affected by its advertising. Note that when firms
where 7 ~ :is the given market commodity price, in perfectly competitive commodity markets
the advertising-effectiveness function ( g ) is as- differentiate their products by advertising, they
sumed to be the same for all consumers,14 and still preserve the perfect cornpetition in these
the variables E and y in g are suppressed. The markets. Note moreover. that if different firms
first-order maximum conditions with respect to were producing the same physical product in
X and A are the sarne con~petitivecornrnodity market, and
had the same marginal cost and advertising-
effectiveness functions. they would produce the
same output, charge the same product price,
and advertise at the same rate. If, however,
either their marginal costs o r advertising-
Equation (16) is the usual equality between effectiveness differed, they would charge differ-
price and marginal cost for a competitive firm, ent product prices. advertise at different rates.
which continues to hold when advertising exists and yet still be perfect competitors (although not
and is a decision variable. Not surprisingly, of one another)!
equation (17) says that marginal revenue and Not only can firnis in perfectly competitive
marginal cost of advertising are equal, where commodity markets-that is. firnis faced with
infinitely elastic commodity demand curves-
I1Theretore. p,X = n : ~ r ,
have an incentive to advertise, but the incentive
,=1 may actually be greater, the more competitive
uhere ,I 15 the number ot hou\ehold\ the commodity market is. Let us consider the
86 THE AMERICAN ECONOiMIC REVIEW MARCH I977

case of a finite commodity demand elasticity.

The necessary conditions to maximize income
!given by equation (15'). if n-, varies as a func-
tion of Z, are

(18)
"
E = r n ; g + X az -
an-, az
ax g - M C ( X ) = 0.
o r since Z = g X . and d Z / a X = g ,

where E , i~s the elasticity of the timl's commod-

ity demand curve. Also

az an- az
r r , ~ + ~ . - . z - p , = o
dA a Z a.4
output and price are Z o and n-,0. respectively.
An increase in advertising to A l would increase
Z to Z , (the increase in Z is determined by the
given g ' function). The decline in n-, induced by
Equation ( 18') is simpll, the usual maximizing the increase in Z would be negatively related to
condition for a monopolist that continues to hold the elasticity of the commodity demand curve: it
when there is advertising.15 Equation (19') would be less, for example, if the demand curve
clearly shows that. given n - , g ' X , the marginal were D ' D ' rather than DD. Since the increase
revenue from additional advertising is greater, in p , is negatively related to the decline in n-, . I 6
the greater is the elasticity of the commodity the increase in p,, and thus the marginal
demand curve; therefore, the optimal level of revenue from the increase in A , is directly re-
advertising would be positively related to the lated to the elasticity of the commodity demand
commoditl, elasticit) . curve.
This important result can be made intuitive by The same result is illustrated with a more con-
considering Figure I . The curve DD gives the
firm's commodity demand c u w e . where n-, is 11;
Since i ~ , g = P , ~ .
measured along the vertical and commodity out-
put Z along the horizontal axis. The firm's
production of X is held fixed so that Z varies
The firit terrn on the right is p o s ~ t i \ eand the second term IS
only because of variations in the level of ad- negatibe. I f g , 8 ' . and i ~ are
, giben, dp,r/iiA i i linearly and
vertisin?. At point r", the level of advertising is negati\el!, related to d r , / d A .
,4,,. the product price is p:, and commodity "Recall again our assumption. h o u e \ e r . that eben tirnis
in perfectl!, competitibe markets can full) d~fferent~ate the~r
products. If the capacit!, of a t i r r ~to differentiate itself were
"It thc le\cI of a d \ e r t ~ \ ~ nI \g held constant. Z IS propor- ~nbersel)related to the e l a s t ~ c ~ oft ) its coniniodit) demand
tional to X.\o cur\e. that is. to the amount of competition in the commod-
11) market. the increaie in 11s product price generated b) its
dZ dr, a d \ e r t ~ s ~ nmight
g not be directl!, related to the elasticit) of
its coniniod~t!, demand curbe.
VOL. 67 VO. 2 STIGLER AND BECKER: DE GUSTIBC'S 87

patterns of purchase of heavily and lightly ad-

vertised goods are implied by the theory.

V . Fashions and Fads

The existence of fashions and fads (short epi-
sodes o r cycles in the consumption habits of
people) seems an especially striking contradic-
tion of our thesis of the stability of tastes. W e
find fashions in dress, food, automobiles, furni-
ture, books, and even scientific doctrine^.'^
Some are modest in amplitude, o r few in their
followers. but others are of violent amplitude:
who now buys an ouija board, or a bustle? The
rise and fall of fashions is often attributed to the
fickleness of people's tastes. Herbert Blumer.
the distinguished sociologist, gave a charac-
teristic expression of this view:
Tastes are themselves a product of ex-
perience. the), u s u a l l ~ develop
~ from an
initial state of vagueness to a state of re-
ventional diagram in Figure 2: the firm's product finement and stability, but once formed
they may decay and disintegrate. . . .
output and price are shown along the horizontal The fashion process involves both a for-
and vertical axes. The demand curve for its pro- mation and an expres\ion of collective
duct with a given level of advertising is given by taste in the given area of fashion. The
dd. We proved earlier (fn. 15) that with advertis- taste is intially a loose fusion of v q u e
ing constant, the elasticity of the product de- inclinations and dissatisfactions that are
aroused by new experience in the field of
mand curve is the same as the elasticity of its
fashion and in the larger surrounding
commodity demand curve. An increase in ad- world. In this initial state. collective taste
vertising "shifts" the product demand curve up- is amorphous, inarticulate, and awaiting
ward to d ' d ' , and the marginal revenue from specific direction. Through models and
additional advertising is directly related to the proposals, fa\hion innovators sketch
possible lines along which the incipient
size of the shift; that is, to the increase in product
taste ma), gain objective expression and
price for any given product output. O u r basic take definite form. [ p . 3441
result is that the shift is itself directly related to
the elasticity of the demand curve. For example, The obvious method of reconciling fnshion
with the same increase in advertising, the shift with our thesis is to resort again to the now
is larger from dd to d ' d ' than from ee to e r e 'be- familiar argument that people consume com-
cause dd is more elastic than ec. modities, and only indirectly d o they consume
This role of infom~ationin consumer demand market goods, so fashions in market goods are
is capable of extension in various directionh. For compatible with stability in the utility function
example. the demand for knowledge is affected of commodities. The task here, as elsewhere. is
by the fonnal education of a person. so sys- to show that this fc)rmulation helps to illuminate
tematic variations of demand for advertisements our understanding of the phenomena under dis-
with formal education can be explored. The
stock of information possessed by the individual '*"Fash~on" Indeed. docs not ncce\\;iril! rcfcr onl! to thc
shorter term prt.i'?rrnce\. 4dnrn S m ~ t h\,I) s that th? ~ntlucncr
is a function of his age, period of residence in a ot ta\hion "oLer dres\ and furnitur? I \ not m ) r c absolut?
community. and other variables, so systematic than o \ e r arch~tecture.portr). and rnus~c" ( p , ' X i )
88 THE 4 tfERIC4 V ECO.VO CflC REVIEW t14RC H 1977

cussion; b e have some t e n t a t i ~ ecomments in approved charities. choose prestigious occupa-

this direction. tions. and do other things that affect his dis-
The commodity apparently produced by fash- tinction. Following recent work on social
ion goods is social distinction: the demonstration interactions. we can write the social distinction
of alert leadership. or at least not lethargy, in of the ith person as
recognizing and adopting that which will in due
time be widely approved. This commodity-it
might be termed shle-sounds somewhat cir- where D l is the contribution to his distinction of
cular, because nem things appear to be chosen his social e n ~ i r o n l n e n t ,and h i is his own con-
simply because they are new. Such circularity tribution. Each person maximizes a utility func-
is no more peculiar than that which is literally tion of R and other commodities sub.ject to a
displayed in a race-the runners obviously d o budget constraint that depends on his own in-
not run around a track in order to reach a new come and the exogenously given social environ-
destination. Moreover, it is a cotnmendation of ment. '% number o f general results have been
a style good that it be superior to previous goods. developed with this approach (see Becker), and
and style will not be sought intentionally through a few are mentioned here to indicate that the
less functional goods. Indeed. if the stylish soon demand for fa5hion (and other determinants of
becomes inferior- to the unstylish, it w o ~ l l dlose social distinction) can be systematically
its attracti~eness. analyzed without ~lssulningthat tastes shift.
Style, nioreo\er. is not achieved simply by An increase in i ' s own income, prices held
change: the newness must be of a special sort constant, would increase his demand for social
that requires a subtle prediction o f u h a t will be distinction and other commodities. If his social
approved novelty. and a trained person can make environrnent were unchanged, the whole in-
better predictions than an untrained person. crease in his distinction would be produced by
Style is social ri\alry, and it is, like all rivalry, an increase in his own contributions to fashion
both an incentive to individuality and a source and other distinction-producing goods. There-
of conformit) . fore, even an average income elasticity of de-
The area\ in which the rikalry of fashion mand for dihtinction would imply a high income
takes place are characterized by public exposure elasticity of demand for fashion (and these other
and reasonably short life. An unexposed good distinction-producirig) goods, which is consist-
(automobile pistons) cannot be judged as to its ent with the comrnon judgement that fashion
fashionableness. and fashions in a good whose is a luxury good.'0
efficient life is long would be expensive. Hence If other p e n o n s increase their contributions to
fashion generally concentrates on the cheaper their own distinction, this may lower i's distinc-
classes of garments and reading matter. and tion by reducing his social environment. For
there is Illore fashion in furniture than in housing. distinction is scarce and is to a large extent
Fashion can be pursued with the purse o r with simply redistributed among persons: an increase
the expenditure of time. A person may be well- in one person's distinction generally requires a
read ( i . e . . ha\.c read the rel'ent books generally reduction in that of other persons. This is why
belie\.ed to be important). but if his time is valu- people are often "forced" to conform to new
able in the market place. it is much more likel) fashions. When 5ome gain distinction by paying
that his spouse will be the well-read member of
the family. (So the ratio o f t h e literacy of wife to '!'The hudgct conhtralnt ior i can be \\rltten a i
that of husband is positivel? related to the hus-
band's earning power, and inversely related to
her earning power.) uherc Z are other c o m ~ i w d ~ t ~[I,,
e s . i \ h ~ margtn;~l
s co\t of
The demand for fashion can be formalized b) chang~ngR. I, I S hi\ o u n full Incorne. and Si i\ h ~ a"social
n s \ u ~ ~ i i nthat
g the distinction abuilable to any ltlcorllc.
"Mar\hall b e l ~ e \ c dthat the derire tor di\tlnct~onu a s the
person depends o n his social environment. and nlost 1x)uerful of pa\\lons and a rriajor source of rhe demand
his own efforts: he can be fashionable. gibe to for luxur! expenditure\ ( \ c c pp. 87-88. 106).
V O L . 67 .\O. 2 STIGLER A.VD BECKER: DE GC'STIBLI'S 89

attention to (say) new fashions, the) lower the The taste for consumption in say 1984 is alleged
social environment of others. The latter are in- to continue to shift upward as 1984 gets closer to
duced to increase their own efforts to achieve the present. In spite of the importance frequently
distinction. including a demand for these new attached to time preference, we d o not know of
fashions. because an exogenous decline in their any significant behavior that has been illumi-
social environment induces them to increase nated by this assumption. Indeed. given addi-
their own contributions to their distinction. tional space, we would argue that the assumption
Therefore. an increase in all incomes induces of time preference impedes the explanation of
an even greater increase in i ' s contribution to his life cycle variations in the allocation of re-
distinction than does an increase in his own sources, the secular growth in real incomes, and
income alone. For an increase in the income of other phenomena.
others lowers i ' s social environment because Moreover. we have not considered systematic
the) spend more on their own distinction: the differences in tastes b) wealth or other classi-
reduction in his environment induces a further fications. W e also claim, however, that no
increase in i ' s contribution to his distinction. significant behavior has been illuminated by
Consequently. we expect wealthy countries like assumptions of differences in tastes. Instead.
the United States to pay more attention to fashion they, along with assumptions of unstable tastes,
than poor countries like India. even if tastes were have been a convenient crutch to lean on when
the same in wealthy and poor countries. the analysis has bogged down. They give the ap-
pearance of considered judgement, yet really
VI. Conclusion have on]) been ati hoc asgulllent5 that dis-
W e have surveyed four classes of phenomena guise analytical f.'31 '1 uses.
widely believed to be inconsistent with the W e have partly translated "unstable tastes"
stability of tastes: addiction, habitual behavior, into variables in the household production func-
advertising. and fashions, and in each case of- tions for commodities. The great advantage,
fered an alternative explanation. That alternative however, of rel) ing onl) on changes in the argu-
explanation did not simply reconcile the phe- ments entering household production functions
nomena in q u e h o n with the stability of tastes, is that all changes in behavior are explained by
but also sought to show that the h!,pothesis of changes in prices and incomes, precisely the
stable tastes yielded more useful pred~ctions variables that organize and give power to
about observable behavior. economic analysis. Addiction. advertising, etc.
Of course. this short list of categories is far affect not tastes with the endless degrees of free-
from comprehensive: for example. we have not dom they provide. but prices and incomes, and
entered into the literature of risk a\ersion and are subject therefore to the constraints imposed
risk preference, one of the richest sources of b) the theorem on negativel) inclined demand
ad hot assumptions concerning tastes. Nor have curves. and other results. Needless to say. we
we considered the extensive literature on time would welcome explanations of wh) some peo-
preference. which often alleges that people ple become addicted to alcohol and others to
"s) sternatically undervalue'. . . future wants" . 2 1 Mozart, whether the explanation was a develop-
ment of our approach o r a contribution from
"Thts quote I \ taken from the follo\\ine Ionjics passage some other behavioral discipline.
in BZihm-Bawcrk: As we remarked at the outset, no conceivable
We mu\t now con\ider a tec,or~dpheniinlcnon o i
human elperience-one that 1s h e a \ ~ l )fraught w ~ t h
expenditurc s f effort on our part could begin to
conseq~lence That I \ the fact that we fi-el less con- exhaust the possible tests of the hypothesis of
cerned about iuture \ensatlnns of j,i! and sorrow
s ~ r n p lbecau\e
~ the) do lie in the future. and thc
stable and uniform preferences. Our task has
leswning of our concern I \ in proportLon to the been oddl) two-sided. Our hypothesis is trivial,
reniotcnes\ of that tuture. Consccluctitl) \be accord
to good\ ibhich are ~ntendcdto \cr\e future ends a for i t merel! assert5 that we should appl) stan-
balue which fall\ short of the true intensit) ot [ h e r dard economic logic as c\tensivelq as possible.
future marginal ut~lit).We s~.\rrrr~ciriccill~ ur~cirrvtrlue

our furur-e LL.UIIIT(ind cil.\o the rnr~i~?.,

il.hic.11ser1,e ro

But the self-same h)pothesis is also a demanding

,\urist\ rhern. [ p . 7681
challenge, for i t urges us not to abandon opaque
YO THE 4;tlERIC4.Y ECO.VO.MIC REVIEW MARCH 1977

and compl~catedproblems w ~ t hthe easq sug- John K . Galbraith, 7 h e A,~luentSociety, Boston

gestlon that the turther explanat~onulll perhdp\ 1958.
someday be produced by one ot our 5ister be- M. Grossman, "The Economics of Joint Pro-
havioral <clence\ duction in the Household," rep. 7145, Center
Math. Stud. Bus. Econ., Univ. Chicago 1971.
Alfred Marshall, Principles of Economics, 8th
REFERENCES ed., London 1923.
G. S. Becker, "A Theory of Social Interaction." R. T. Michael and G. S. Becker, "On the New
J . Polit. Econ., Nov./Dec. 1971. 82, 1063- Theory of Consumer Behavior," Swedish J.
93. Econ., Dec. 1973, 75, 378-96.
H. C. Blumer, "Fashion," in Vol. V, In[. John S. Mill, A System of Logic., 8th e d . , London
Encyc.10. Soc. Sci., New York 1968. 1972.
Eugen von Bohm-Bawerk, Capital nnd Interest, Adam Smith, Theory of Morul Sentiments, New
vol. 2, South Holland. IL 1959. Rochelle 1969.