EoC Summer School, Prague 24/8/2015

1. Towards a relational perspective in economics
Benedetto Gui
Sophia University Institute, Loppiano, Florence

2. Which is the greatest flaw of the economic
science for someone with a humanistic taste?
• Egoism
• Materialism
• Individualism

3. Egoism: experimental evidence
• Engel (2010) examines 328 experiments of
‘dictator game’, with a total of 20,813
osservazioni.
• 36% of players give nothing (or the minimum
amount)
• Engel’s final comment: “No doubt humans are
systematically more benevolent than “homo
oeconomicus”

4. The standard tools of economic analysis
can handle altruism quite easily

5. Materialism:
investment is more and more intangible
NFB = Non-Farm Business

6. Materialism: most outputs are intangible
Ukraine 9.4 34.4 56.2 2011 est.
United Arab
Emirates
0.8 53.9 45.3 2011 est.
United
Kingdom
0.7 21.4 77.8 2011 est.
United States 1.2 19.2 79.6 2011 est.
Uruguay 9.4 21.7 68.9 2011 est.
Hong Kong 0.1 6.8 93.2 2011 est.
Hungary 3.7 31.3 65.0 2011 est.
India 17.2 26.4 56.4 2011 est.
Indonesia 14.7 47.2 38.1 2011 est.
Iran 10.4 37.7 51.8 2011 est.
Country Agriculture Industry Services Year[1]
Afghanistan 34.9 25.0 40.0 2008 est.
Albania 20.7 19.7 59.6 2011 est.
Algeria 12.0 56.5 31.5 2011 est.

7. Intangible goods and economic reasoning
The concepts developed by economic theory
regarding production and consumption of, or
investment in, material goods can be
extended quite naturally to intangible goods

8. "Perhaps the grossest flaw in the economist's traditional
view of •the human being is illustrated by the attention
we devote to his •man-thing activities as opposed to
man-man activities.
Our •textbooks talk of tastes for cheese or shoes or
automobiles, rarely for desires for children or mates or
subordinates or fraternal associates.
Other social scientists… have just •scorned this view of
man as rational unaffiliated thing-consumer, •interacting
with others only through market exchange.“
Jack Hirschleifer (1978). Natural Economy Versus Political
Economy, Journal of Social & Biological Structures 1: 319-37.
Individualism, individualism!

9. How we got there (1)
Modern economic theory developed with a
special focus on the market mechanism
(economists were fascinated by its features and
furthermore it represented a separate sphere,
the domain of the students of a new science).
But the market lends itself well to exchanging
goods of a private nature, so the students of the
market are led to focus on them, and on the
needs those goods can satisfy.

10. How we got there (2)
Some XIX scholars were aware of this problem.
In particular in the German-speaking academy there
was a debate whether economists should also
consider “relationship-goods”, such as “relationships
of hospitality, love, family”.
Authors such as Menger and Böhm-Bawerk were
involved. They took somewhat contradictory
positions, and in the end the question was
abandoned.
Two possible explanations:
i) greater complexity of such “goods”;
ii) ii) individualistic orientation of the economic
discipline, especially in the Anglo-Saxon tradition.

11. What the glasses of economics do not see.
An extreme case: Walras’ general equilibrium
 The economy is essentially a set of markets.
 Economic interaction is synonymous with exchange
 Exchange is centralized, and proceeds as follows:
o an auctioneer announces a price for each good;
o economic agents declare how much they intend to sell/buy of
each good at those prices;
o the auctioneer raises the price proposed for the goods whose
demand exceeds supply, and viceversa;
o agents respond reformulating their demand/supply , and so
on until all markets clear;
o at this points each agent delivers/withdraws the quantities
announced.
• Agents do not need to interact directly with each other

12. What is missing in Walras’ description? (1)
1) The richness of communication
processes and their manifold effects

13. A modern attempt at enriching the
economists’ view of human interactions
Manski (2000): beside «market interactions»
there exist «social interactions»
More precisely, actions by others influence:
- our constraints (if others take that road, my
travel time increases)
- our information (a queue outside a shop
signals favorable price/quality ratios)
- our preferences (conformism, choice to live in
an area depend on who else does it )

14. In the end Manski admits:
“… I have restricted attention to processes in
which agents affect each other through actions.
A more general class of interactions permits the
preferences, expectations and constraints of one
agent to affect the preferences, expectations,
and constraints of another agent in ways that
are not mediated through actions...
After all, humans do communicate about all
sorts of things" (Manski, 2000, p. 121).

15. What does direct communication
permit, or facilitate?
• Education
• Psychotherapy
• Therapy
• Reputation
• Coordination (e.g. in organizations)
• Innovation diffusion
• …

16. And furthermore
As the economic agent is more than an
«economic man», economic interactions are in
fact a multidimensional encounter.
Especially in face-to-face events humans also
interact on the affective level, communicate
mutual dispositions (and value them greatly).
[Social psychology has a lot to say about this]

17. What is missing in Walras’ description? (2)
2) Communication responds to intrinsic
(i.e. non-instrumental) needs
i. workers take or leave jobs because of the
interpersonal climate (not only wages,…)
ii. the quality of life depends on the intensity
and content of informal social interactions

18. Determinants of job satisfaction

19. Satisfaction with the job as a whole vs. other items of
satisfaction (Borzaga & Depedri, 2005; ordered probit)
Variables Coeff. P[|Z|>z] Signif.
Constant -1.4041 .0000 ***
professional development 0.1647 .0000 ***
Decision-making autonomy 0.0491 .0031 ***
recognition of one’s contribution 0.0963 .0000 ***
variety and creativity of the job 0.1255 .0000 ***
the working environment 0.0497 .0017 ***
the social usefulness of the job 0.0874 .0000 ***
the salary 0.0691 .0000 ***
Working hours 0.0581 .0003 ***
Previous career advancements -0.0113 .5809
future career advancements -0.0109 .6056
job security 0.0268 .0615 *
relations with superiors 0.1117 .0000 ***
relations with colleagues 0.0388 .0339 **
Significance: ***=less than 1%, **=less than 5%, *=less than 10%.

20. What about satisfaction with life,
or «happiness»?
A vast literature has investigated
«subjective well-being» following the
seminal work by Richard Easterling
(1974).
Information is collected through
questionnaires by asking people
about their feelings, or else their
evaluation of their own life.

21. 21
Source: Easterlin (2001)
GDP and happiness in the US: Easterlin’s paradox

22. China’s economic miracle and happiness
S.Bartolini & F.Sarracino. The dark side of Chinese growth: Explaining decreasing
well-being in times of economic boom, MPRA WP No. 5776, Aug. 2014.

23. If not GDPpc or income, what brings happiness?
Better look at interpersonal relationships!
But, paradoxically, happiness studies give us a money
equivalent of:
• being married
o 100,000 $ per year (Blanchflower and Oswald, 2004, US)
o 50,500£ per year (Powdthavee, 2006, UK)
• having an additional associate in one’s neighbourhood
o 438 € per month (Groot et al. 2006, Netherland)
• having the opportunity of meeting friends often
o 85,000£ per year (Powdthavee, 2006, UK)
Do not be horrified! If this is so, economic science must take
these entities into account.

24. Relational goods
One way of describing the evidence above
within the language of economic theory is by
making recourse to the notion of «good»,
something that :
- satisfies to a need
- and has a cost
Hence the expression «relational goods»

25. Humans like/need entities such as:
• recognition
• consideration
• belonging
• company
• sharing sentiments
• mutual understanding
• Love

26. Do such entities have a cost?
Beware the difference between cost and price.
Cost has to do with what you must give up in
order to obtain a good
For relational goods to come into existence
something certainly must be diverted from
other activities: time

27. "the increasing supply of material goods per hour
worked means that <<time becomes scarcer in
relation to goods>> .. more time is needed for
consuming more material goods, and … there is a
decreased quantity of time available for the time-
consuming activities of sociability and friendliness”
Fred Hirsch, Social Limits to Growth, 1978, p.262-3
Apart from time, what else is needed for
obtaining, or «producing» relational goods?

28. The strange «production technology»
of relational goods
Relational goods are produced in personalised
interactions by interactants themselves (who are
also those who «consume» them)
Most often relational goods arise as a side product
of other activities that lead people to interact face
to face (to be envolved in «encounter»).
Also «relational bads» can be produced (and –
inevitably – consumed) in encounters. So how the
interaction develops makes a lot of difference.

29. Modelling consumption in interaction
(extending Gary Becker’s suggestions)
INTERACTANTS’HUMAN RESOURCES
time &
effort
human capital
specific non-specific
NON-HUMAN
RESOURCES
(intermediate
goods & services)
«PRO-SUMPTION»PROCESS
changes in
human
capital
(specific &
non-specific)
EXTERNAL
ENVIRONMENT
(physical &
social)
changes in
the external
environment
(physical &
social)
final
commodities
consumed
(action-
dependent)
final
commodities
consumed
(attitude-
dependent)

30. By the way:
relational vs. environmental goods
- both are ignored in national accounting
- both involve capital goods that tend not to be
recognized
- if classes of important goods are disregarded, the
conventional search for efficiency tends to be
biased and therefore counterproductive
- both can be part of a more humane and possibly
more satisfactory economic lifestyle (even a more
efficient one)

31. EXCHANGES? ENCOUNTERS!
RELATIONAL GOODS INSIDE THE ECONOMIC SPHERE
HUMAN RESOURCES OF INTERACTANTS
time and effort
“human capital”
non relation-
specific
relation-specific
NON-HUMAN
RESOURCES
(transportation,
accommodation)
ENCOUNTER
exchanges
Provision
of services
execution of
productive or
decision-
making tasks
relational
consumption
goods
changes in
interactants’
human capital
External
environment
Intentions and
motivations

32. A final comment
The concept of relational goods helps us enlarge our
vision of economic life, but it is still quite simple
from the anthropological point of view.
It cannot adequately express a vision of humans
beings as having a vocation for communion, a vision
of human fulfilment that passes through going out
of oneself and opening to others (and hopefully be
reciprocated by them).
Yet it is a useful tool for bringing something of this
vision into the standard economic discourse.