New Directions in Eco~omi~_~s~~, Stephen E.G. Lea,Paul Webley and Brian M. Young (Eds.), Edward ElgarPu"blishing Ltd., U.K. (1992) J PP' 13-27

2. Socio-economics:implications

Amitai EtzioniThe George Washington University

Socio-economics is a new paradigm that seeks to combine the kind ofvariables typically encompassed by neo-classical economics withthose contained in other social sciences. It emerges out of work bymany authors, for instance Albert Hirschman, Harvey Leibenstein,Herbert Simon and Amatalia Sen. It is not so much seeking to replacethe kind of analysis associated with neo-classical economics (andfound these days also in other branches of the social sciences, forexample exchange sociology and Public Choice political science), butto encompass these works in a broader framework, one thatsystematically adds the study of institutions. values and emotions tothat of markets, rationality and choice behaviour (for additionaldiscussion, see Etzioni, 1988). While socio-economics is clearly lessparsimonious than neo-classical analysis, it claims to be able topredict and explain better as well as to stand on firm ethical grounds.claims not evaluated here. Instead the discussion focuses on the kindof policy analysis, suggestions and insights the new paradigm leadsto. In the process, these are compared with those provided by neo-classical analysis..As socio-economics is a new discipline, often we need to indicate

not only what it recommends, but also the lines of research needed tofurther support the suggested lines of policy analysis.

A quick example will serve to illustrate this approach. Neo-classical works in labour economics that summarize the state of theart, often discuss efforts to increase incentives for work performance.These books focus almost exclusively on monetary incentives such asdifferences between wages and salaries. pay-for-time vs. piece rates,and so on (see, for example, Bloom and Northrup, 1981; Reynolds,Masters and Moser, 1986). Socio-economics adds to such analyses

13

14 Amitai Etzioni

the concept of reference groups, that is, the observation that peopleare also concerned with their relative (or nominal) wages and not onlywith their absolute (or real) ones (Frank, 1985). The same may besaid about recognizing the intrinsic appeal of work (vs. leisure),employees' desire for dignity and identity, the merits of employeeparticipation in decision making for certain categories of work, andthe significant role of corporate culture.

This chapter explores other major areas that seem to benefit fromincorporating studies of social factors. We shall discuss policyimplications, but not the theoretical, paradigmatic issues involved.The chapter draws on the author's book The Moral Dimension:Toward a New Economics (Etzioni, 1988).

POLICY IMPLICATIONS OF ALLOWING SHIFTINGPREFERENCES

Many neo-classical analyses take preferences as given and stable(Stigler and Becker, 1977), assuming that individuals have aparticular and constant set of 'tastes', 'values', or 'aspirations',Changes in behaviour are assumed to result from changes in'constraints' or income, but not in preferences, Thus, for example, aneo-classical analyst investigating the reasons that consumption ofalcohol in the USA has declined since 1980 will typically ask if theprice of alcohol has increased, whether the age of drinking has beenraised and so on, but not whether the desire to consume alcohol hasbeen reduced due to changes in the valuation of 'drinking', The neo-classical explanatory conceptions do not really accommodate the factthat these changes are due largely to two social movements, thehealth-and-fitness movement and a neo-temperance movement,especially MADD and SADD (Mothers and Students Against Drunk

Driving),The reasons that neo-classicists treat preferences as fixed should be

briefly explicated and arguments for disregarding these reasonsprovided, Information about preference changes, neo-classicistsassert, is 'ephemeral', based on 'soft', nonbehavioural data such assurveys of attitudes; further, preference changes involve non-observable states of mind, Without asking if or how such data can beused or made reliable, let us note that the same tools that are used tostudy economic factors can be used to study non-economic variables,as they are reflected in actual behaviour. For example, followingLancaster (1966), one may disaggregate the attributes of a car todetermine the price of purchasers are willing to pay for each of the

Socio-economics: Select policy implications 15

attributes, such as speed, design and colour. The same disaggregationcan be used to detennine the amount people are willing to pay for acar to be American or non-Japanese (say, after World War II) and thechange (presumably the decline) in this preference over the postwaryears. The same goes for any other values, for example, a car that is'beautifully' designed, environmentally sound, and so on.

Neo-classicists argue that incorporating preference changes in theexplanation of behaviour precludes useful analysis, because wheneverbehaviour changes, presumably we shall state that preferences havechanged. There is, however, a satisfactory rebuttal for this argument.If we have enough observations over time, we can test hypothesesabout changes in constraints and in preferences (including valuechanges that often cause preference changes). For instance, taxcompliance has been shown to be affected both by the level oftaxation (basically, the higher the tax rates, the lower the level ofcompliance), and by whether or not taxes are viewed as fairlyimposed (Lewis, 1982). Thus, if an increase in compliance follows aperiod in which tax rates have not been reduced, and if in that sameperiod numerous loopholes were closed, then all things being equal,we would expect that the change is due to an enhanced sense offairness.

The argument of some neo-classicists -that they need not studypreference changes, or the value changes that drive them, becausethese phenomena belong to 'different' disciplines (namely psychologyand sociology) -may indeed be correct. It is an argument thatfavours the development of a more encompassing paradigm, one thatencompasses both social and economic factors: socio-economics.

A key policy implication of a paradigm encompassing the study ofchanges both in constraints and in preferences is that when we designpublic policies, we need not limit our efforts to providing information(action which relies on the assumption that people have fixedpreferences, but need to understand better the costs and benefits of thechoices they face). Rather, we may also seek to appeal to people'svalues and alter their preferences by, for example, drawing on publiceducation campaigns and on community leaders. Several recentsocial movements have catalysed changes in the American public'svalues, changes that came about years or decades after relevantinformation was available. The civil rights movement of the 1960sbrought both institutional reforms and a general change in the beliefsAmericanslheld; blacks have come to be more widely viewed as full-fledged citizens, deserving social justice. The women's movementthat followed the blacks' push for civil rights, also achievedsignificant changes in America's values. Large segments ofAmerican society now consider the old adage, 'a woman's place is in

16 Amitai Etzioni

the home', not only outmoded but offensive. The recent shift inattitudes towards death further attests to changes in American values.Previously, a person was considered dead if their heart and breathinghad stopped. Today, the idea of brain death has assumed primacy,largely because the health care community adopted the standard.Other significant changes occur mainly when the social web ofemotive forces found in peer groups supports behavioural changes, asin the recent condemnation of smoking.

Recently, the distinction between informing individuals andseeking ways to appeal to values in other behaviour has beenhighlighted by the efforts to slow the spread of AIDS. In 1989 theSurgeon General sent a brochure to every home in the United Statesand pamphlets were handed out to drug addicts in the back streets,infonning Americans about the danger of AIDS, and what is to bedone. While this campaign demonstrates the government's concernand interest in changing American's behaviour to stem the tide ofAIDS, it is difficult to imagine the psychological processes that wouldcause an addict to change his or her ways because of a piece of paper.Beyond this infonnation campaign, finding means to involve suchaddicts in supportive social groups similar to Alcoholics Anonymousare needed. The nation's homosexuals, much more of a communitythan addicts, have been much more successful in changing theirbehaviour.

In response to the argument for appealing to values in order tomodify preferences, neo-classicists raise an ethical objection. Theystate that individuals ought to determine their own conduct, that thegovernment should not interfere, and that those who object toconsumer sovereignty and seek to influence individual tastes areelitist snobs who wish to impose their 'tastes' on others. (Few neo-classicists have the courage of Mishan, 1969, chap. 9, to apply thesame logic to commercial advertising.) Socio-economics takes adifferent nonnative stance, arguing that some 'tastes' clearly ought tobe modified, for instance, those which cause harm to others (forexample, smoking and reckless driving) and those which demonstrateopen disregard for community needs (such as dumping toxic wastesinto lakes). In yet other instances, it is proper to appeal to people'svalues, such as fairness.

Nor is government the only way of influencing tastes, or coercionthe proper means; the community is often the most effective agent,and voluntary appeals are a main tool. Hence, community leadershipand education by parents, neighbours, peers and churches should beincluded in policy design. For example, smoking is beingsignificantly curtailed as its social valuation is changing. Peer

Socio-economics: Select policy implications

pressure plays a key role in generating the emotive force needed tohelp smokers to mobilize themselves to overcome this addiction.

While socio-economists have identified many of the variables thataffect preferences, there is no parsimonious conception of the factorsthat cause preference changes. Numerous factors are cited, but thereis little consensus about the list. To illustrate in a very preliminaryway the kind of propositions that are needed, it has long been heldthat social movements tend to have a set 'natural history' (Michels,1915/49; Weber, 1922/48). They rise rapidly and then graduallydecay, both through .secularization , (loss of commitment) and

through sectarianism (internal divisions and strife). They rarely last.Hence, value changes based only on a social movement, if notfollowed by institutionalization, will have much smaller and shorterterm effects than is widely assumed at the height of popularity of the

social movement.If these propositions are correct, the longer-run effects of a social-

religious movement such as fundamentalist Islam, widely assumed tobe a major factor in the Middle East in the coming decades, are likelyto be quite limited. The same pattern is visible in the United States,where one can already witness the cresting and the beginning declineof the neo-temperance movement and perhaps even the health-and-fitness movement. The 'couch potato' trend, a new movement ofacquiescence that celebrates the comforts of home as an antidote to aperceived harshness in the economic environment, may be slowlyascending only to follow the same pattern of other social movements-a rapid rise and a gradual decline.

It is not argued here that these propositions about the patterns ofsocial movements have been sufficiently validated or a,re closeenough to the data to be relied upon in policy making. Rather, thepropositions are used to illustrate the kind of parsimonious theory weneed which would enhance the inclusion of the factors that shapepreferences in socio-economic analyses, and are used for policy

analysis.

PERSONALITY

DEVELOPMENT

EDUCATION:

The disregard of education (as distinct from teaching skills andtransmitting knowledge. or training) leads many educationalreformers in the USA to focus their agenda too narrowly. They leaveout the need for basic psychological preparation. especially characterformation. an essential prerequisite for acquiring basic skills. anessential in turn for being an effective employee.

18 Ami/ai E/zioni

Plans to refonn schools tend to overlook the significance of thehome and parenting for education. Many young Americans grow upin unstable families (Norton and Glick, 1986) which may not beviable from an educational viewpoint. Frequent divorces, frequentrotation of boyfriends, and parents coming home from workexhausted both physically and mentally, create in many homes(whether one or two parents are present) the potential for atremendous parenting deficit. Character fonnation requires the kindof close, loving supervision that is more likely to occur in a stablehome environment, if one or both parents invest time and energy in it.

As a result, personality traits essential for the acquisition ofspecific skills (mathematics, English, and vocational) often remainunderdeveloped. Children come to school lacking self-discipline;they cannot defer gratification, concentrate, or mobilize attention tothe tasks at hand. It is futile to pump into these youngsters moremathematics, foreign languages, long hours of science or liberal arts.Even so simple a skill as typing is a case in point. One can teach aperson the mechanics in less than one hour (where to place thefingers, how to adjust the margins). The rest is simply a matter ofpatience, the ability to repeat the same drill often enough, long

enough.Many studies find that students cannot do mathematics or write

English. They do not concern such advanced matters as whetherstudents can craft a powerful essay or analyse a calculus problem; atissue is the ability to do arithmetic and write a clear memo. Again,close examination as to what is required points in the same direction.The elementary rules can be taught quickly. When you subtract Afrom B and get C, tally B and C to verify that they make A; a sentenceends with a period, and typically includes a finite verb; and so on.The rest is a matter of self-discipline, the ability to adhere to theserules and not to jump to conclusions or ramble on in a paper.

One of the best bodies of data is that collected on a nation-widebasis by James Coleman and his colleagues at the University ofChicago (Coleman, Hoffer and Kilgore, 1982). The data show thatchildren who study well also have well-developed characters. Theyoungsters in 'high perfonnance' schools had two main attributes:they did a great deal of homework and they identified with theirteachers, teaching and school. Homework is the giveaway clue; thosewho can do a great deal of it, largely unsupervised, have acquiredself-discipline. And students need to respect their teachers, and seetheir assignments as meaningful. Otherwise they do not internalizeself-discipline, do not make it part of their own character.

Several other studies (Rutter et at., 1979, especially) reach similarconclusions. Programmes such as the Conservation Corps, and some

Socio-economic.\':

Select policy implications 19

of the drug treatment progranunes, take young people who often aredisoriented, lacking in motivation and skills. They aim to develop,first and foremost, their self-discipline, psychic stamina, the ability tomobilize and make commitments. Once that is achieved, acquisitionof specific skills and employment becomes relatively easy.

Beyond being a prerequisite for good study habits, self-discipline isessential for making an employee show up for work regularly, beresponsible for the quality of his or her production or take theinitiative, in short, for work ethics.

What socia-economic policy wlJuld enhance the development ofcharacter? It is important to start early. Companies might offer theiremployees (mothers and fathers) more leave in the first two years ofthe child's development. Parents ought to be advised that prematureemphasis on cognitive achievements (learning to read, multiply, andso on) and neglect of human development, is self-defeating. Onepresupposes the other.

Recognizing that such a transformation in child-care policy isunlikely, and that many parents probably will continue to spendrelatively little time developing their child's character, public policyrequires that schools step in. Schools may have to start earlier, say atage four, and be open longer during the day and into the summer, tomake up for some of the lost parenting.

Finally, resources must be shifted from the top-heavy end of theeducational structure to the lower levels -early education. Currentlywe often prepare youngsters poorly in primary schools, mistrain themin high school, and then graduate them with poor working habits. Forall too many of them, we then spend the first two years of collegetrying to correct what went wrong in the lower schools, teachingremedial English, catching up on mathematics, and above all, tryingto instil better working habits. It is much more effective, both from asheerly economic viewpoint and from a human one, to help youngpeople learn things right the first time around.

TOW ARD A SOCIO-ECONOMICS OF INCENTIVES

Policies are concerned more with hierarchies (for example. withincorporations or the government) than with the market; markets aresaid to be best left to their own built-in self-regulating mechanisms.Here we consider the question of the most effective policies forcompensating those subject to control and guidance by hierarchies.Neo-classical analysis favours paying for performance rather than fortime units (as in payment by piece of work acccomplished instead of

20 Amilai EIDoni

paying a regular wage or salary). The elementary reason is that whenpaying for time one does not know what level of performance, if any,one pays for (Baker et ai., 1988, p. 595). This is more than a meretheory; the widespread criticism of bureaucracies (of governments butalso of large corporations, for example GM) is indicative (forexample, Cyert and March.. 1963).

But Baker et ai. (1988) show that pay for performance is in factrarely used. Two of the studies they cite illustrate the point. Medoffand Abram found that in two large corporations they studied, therewas little financial reward for superior performance. In onecorporation employees whose work was ranked 'not acceptable', thelowest ranking, were paid only 7.8 per cent less than the very best('outstanding'). In another corporation, pay of those whose work was'unacceptable' was only 6.2 per cent less than of those who topped sixranks, employees whose work was ranked as 'excellent'. There wasalso a strong tendency to rank most employees as high performers.For example, in one corporation 95 per cent of the employees'perfonnance was ranked as 'good' or better. Similarly, citing sixdifferent studies of the relationship between pay and performance,Lawler found that

evidence indicates that pay is not very closely related to ~rformance in manyorganizations that claim to have merit increase salary systems. ..The studiessuggest that many business organizations do not do a very good job of tyingpay to ~rformance. This conclusion is rather suprising in light of manycompanies' very frequent claims that their pay systems are based on merit. It issurprising that pay does not seem to be related to ~rformance at the manageriallevel. (Lawler, 1971, p.158).

Socio-economics shows that the factor most important inexplaining compensation is rank, not performance. While ranks areindirectly linked to performances, bonuses would be more effective(Baker, et al., p. 601). However, employees seeking relief fromanxiety, wishing power and visibility, are more motivated by ranks.which helps to explain why ranks and not bonuses are by far the mostconunon and important mode of differential compensation. The samefactors account for the observation that when one tries to shift togreater reliance on pay for performance. the result is a very sharp dropin productivity. attendance and other measures of performance.Psychologists have found that monetary rewards can becounterproductive in some laboratory situations. One explanation(Deci, 1972) 'argues that money actually lowers employeemotivation, by reducing the "intrinsic rewards" that an employeereceives from the job.' (Baker et al., 1988. p. 596). Slater (1980)similarly concludes that '[u]sing money as a motivator leads to a

21Socia-economics: Select policy implications

progressive degradation in the quality of everything produced' (ibid).Kohn (1988) offers further explanation on the counter-productivity ofmonetary rewards. stating. 'First. rewards encourage people to focusnarrowly on a task, to do it as quickly as possible, and to take fewrisks. ..Second. extrinsic rewards can erode intrinsic interest. ..[Finally]. people come to see themselves as being controlled by areward. '

Socio-economics does not conclude that competition policiescannot be modified to be somewhat more performance oriented;however. a major shift may neither by possible nor beneficial becauseof non-economic needs of the employees. including professionals andmanagers. not just blue collar workers. All of the studies cited heredeal with these kinds of employees.

INSTITUTIONAL CHANGE

Neo-classical analyses tend to focus on transactions amongindividuals or small units (such as households and small firms), andtheir aggregation in anonymous markets, that is, markets that areassumed to have no collective controls. To the extent that institutionsare studied at all within this paradigm, they are generally perceived asreflecting arrangements made voluntarily and knowingly byindividuals, in line with their interests and goals. Traditionally, othersocial sciences tended to view institutions as reflecting historical(macro) processes. society-wide values. and power relations. Socio-economics seeks to encompass both the influence of individuals andthat of society. It attempts to combine aggregative analysis withcollective analysis by assuming that collective factors provide thecontext and are 'priors' within which individuals act, and which inturn are affected by them.

The significance of systematically including institutional analyseslies in the fact that the existence of institutions hinders or assistspolicy. So, even if one does not seek to modify the institutions. theireffects on policy must be taken into account. For example, amultiyear economic policy fonned within the United States (say, acorporate development plan) that ignored the well-establishedeconomic effects of the four-year political cycle driven by presidentialelections, is less likely to succeed than an economic policy that takesthe cycle into account. All other things being equal, the expansivepolicies of election years provide a much more hospitable economicenvironment for a new product. or newly expanded productioncapacities. than the first year of a new administration. 'Bitter

Amitai Etzioni

medicine' is usually prescribed during this first year; hence. theperiod tends to be economically restrictive. The cycle. in turn,reflects the Constitution and not an aggregation of individualdecisions. Similarly. one must expect little success for a policy thatignores differences among institutions. For example. shifting lawenforcement functions from the FBI to local governments is unlikelyto be successful given the widespread corruption institutionalized inmany local police forces. The same must be said about a policy thatshifts responsibilities from the Internal Revenue Service or the federalSocial Security Administration to local tax collection or welfareagencies.

Beyond accounting for the established features of existinginstitutions and the powerful inertia and vested interests they tend togenerate. one must also recognize that institutions can be changed andpolicy advanced via such changes. Thus. instead of, or in addition to.using educational campaigns to encourage many millions ofAmericans to increase their saving. one can enhance saving bychanging the tax laws. under some conditions by reducing corporateoutlay on dividends (that is, by increasing retained eamings) or. moreeffectively. by reducing government expenditures.

Segregating Social Security from the unified budget. and investingits surpluses into a portfolio of American corporate and governmentbonds will do as much or more for the American savings rate thanwill. say. doubling the size of funds individuals can salt away. taxdeferred. in their Individual Retirement Accounts (IRAs). While aconstitutional amendment to balance the budget may well createseveral new problems. it would modify significantly the institutionalcontext of the struggle to reduce federal deficits.

Similarly. aside from working on individual incentive scheme!;.corporations often benefit when they also introduce institutionalchanges such as increased co-operation with labour unions (as in thecase of General Motors and the United Auto Workers in recent years),quality circles, or participatory decision making. None of these isautomatically sure to have the desired result; more research is neededabout the conditions of success versus failure. One may arguewhether individuals or institutions are more powerful; however, oneconclusion is clear: policy analysis should consider both individual.aggregative and institutional factors.

ARE CRIMINALS JUST LIKE US?

Neo-classical economists analyse crime in terms of costs and benefits.

Socio-economics:

Select policy implications 23

They argue that the probability of being arrested and convicted, thesize of the penalty, and the size of the loot, that is, costs and'benefits', correlate with the frequency of a large variety of crimesbeing conunitted, including murder and rape (Andreano and Siegfried1980; Rottenberg 1979). The data are subject to considerablemethodological controversies, but these need not concern us here. Tothe extent that these data have demonstrated that self-interest plays animportant role in situations hitherto considered the domain ofimpulsive behaviour, neo-classical economists provide an importantcorrection to the over-socialized view of crime, a view that focusesalmost exclusively on the role of education, subculture, peer pressureand other such factors. However, to the extent that neo-classicistssuggest that self-interest accounts for all or most of the variance, theyvastly overstate their findings (Cook 1980), and their conclusions willtend to mislead policy makers. Thus, for instance, Rubin's statements(1980, p. 13) that 'the decision to become a criminal is in principle nodifferent from the decision to become a bricklayer. ..the individualconsiders the net costs and benefits of each alternative and makes hisdecision on this basis', and 'tastes are constant and a change in[criminal] behaviour can be explained by changes in prices [such aspenalty]', tend to mislead. They ignore the fact that despite whatevercorrelations are found between 'prices' and level of criminality, muchof the variance (in crime rates) remains unexplained, most likelybecause moral and other social factors are at work. Second, suchstatements overlook the fact that the 'taste' for crime, like all others,is affected by normative and other social factors, for example, by theextent to which the relevant subculture disapproves of the particularkinds of crime involved (Grasmick and Green 1981; see also Casson,this volume).

Similarly, statements such as Murray's (1984, p. 168) that 'crimeoccurs when the prospective benefits sufficiently outweigh theprospective costs' are not only formulated in a way that makesfalsification impossible (if no crime occurs under a given set ofconditions, under which it is expected to occur, the benefits might besaid to not 'sufficiently' outweigh the costs), but also tend to misleadpolicy makers into disregarding the role of education, subculture,leadership, and role-models. Of special interest in this context isWilson's (1985) discussion of the role of various 'impulse control'movements and organizations in nineteenth-century America. Wilsonpoints out tJhat as industrialization advanced, youngsters who once lefttheir homes only to work in other homes under the supervision ofother farmers or artisans, then started to reside in boarding houses inthe cities, without any family bonds or authority. The result waswidespread disorderly conduct. This was followed by numerous

24 Ami/ai E/zioni

efforts to advance control of impulse and build up inner control, self-discipline, and 'character'. These included Sunday schools, YMCAs,temperance movements, and various other religious and secularvoluntary associations. Some had other goals, but impulse controlwas a by-product; others were aimed directly at instilling self-

discipline.The policy point is that one needs to work not merely on the cost-

benefit, deterrence, incentive, and police side but also on theformation of preferences side, via moral education, peer culture,community values, and the mobilization of appropriate publicopinion, factors that neo-classicists tend to ignore because they takepreferences for granted, and their theories provide no analyticalframework to conceptualize the ways in which preferences are formedand might be reformed. The trouble with theories that fit into adeontological paradigm is that they include numerous, complex,propositions that are difficult to quantify. They may have to besynthesized, made more parsimonious and more operational, beforethey can effectively play their role next to economic analysis.

Neo-classical analysis of crime is largely based upon workpioneered by Gary Becker (1968). Becker's economic approach towhite-collar crime is summarized by Richard Posner (1980): 'thewhite-collar criminal. ..should be punished only by monetarypenalties -by fines (where civil damages or penalties are inadequateor inappropriate) rather than by imprisonment or other 'afflictive'punishments (save as they may be necessary to coerce payment of themonetary penalty)'. Becker states that '[a]ccording to the economicapproach, criminals, like everyone else, respond to incentives'(Becker, 1985a). By setting fines equal to the harm the corporatecrime inflicts on society, companies will be deterred from certaincrimes and society will be compensated for the harm imposed. Thus,Becker poses the question, 'If guilty companies pay for the harm tosociety, why should we want to discourage white-collar crime thatraises a country's wealth?' (Becker, 1985b).

Posner furthers this economic analysis of crime by arguing thatfines can be an equally effective deterrent and are socially preferablebecause they are cheaper to administer than costly jail terms. Hearrives at this conclusion using a cost-benefit analysis which weighsthe cost of collecting a fine and the cost of imprisonment. Animportant qualification is that the offender must be able to pay thefine, and that the fine must be set equal to the disutility imposed by ajail sentence.

A socio-economic analysis of criminal sentencing is offered byJohn C. Coffee. Coffee (1980) argues that fines are an inefficient wayto deter white-collar crime. He criticizes Becker and Posner's optimal

Socio-economics: Select policy implications

sanctions approach -which he calls the Free Market Model -findingit flawed upon investigating 'both traditional elements of economicanalysis (such as uncertainty) and non-economic factors that aredeeply embedded in the structure of our criminal justice system (suchas the tendency toward nullification of extreme penalties) (p.422)'.Whereas neo-classicists see fines as the optimal fonD of punishment,Coffee shows that the threat of incarceration is a greater deterrent thana monetary penalty.

Coffee criticizes the Becker fonnula for detennining an optimalfine as too elusive a fonnula to implement (there are too manyunknowns left to be solved). Coffee suggests we try to achieveequivalence between penalties as opposed to detennining precisemonetary equivalents for a penalty. Also, socio-economists explainthat there are symbols involved in criminal sentencing as well as 'cutand dried' costs. For example, Coffee criticizes Becker's model ofpunishment because it fines the rich and jails the poor. Values comeinto playas Coffee states that '(c)riminal justice refonns must takeinto account the problem of demoralization costs' (p.448). Thisrepresents an institutional bias, and 'some means of seekingequivalence is necessary'. Answering this point, Posner retreats to hislogic that there is a quantifiable fine equivalent for every prisonsentence and the offender should be imprisoned if the fine is notcollected. He is left questioning how the rich are favoured under sucha system.

A RAND study (Manning et al., 1989) is sensitive to the need for adual perspective. First it deals with external costs of drinking alcoholand smoking cigarettes (costs not reflected in the price, such asmaking others sick), by itself a broader perspective than many neo-classical studies use. Next, it uses the size of the excise taxesimposed, taxes that recoup some of the social costs not reflected in thepre-tax, market price. They concluded that taxes on alcohol are nothigh enough, while those on cigarettes are high enough -if economicefficiency is the criterion for determining taxation. Costs are regardedas recouped, however, only because the authors deduct 'contributions'smokers make to pension funds and to social securities (they dieyoung and hence often do not collect; see also Koretz, 1989).

Most important, the RAND study does not stop at evaluation froman economic efficiency viewpoint. It openly and explicitly callsattention to factors that might lead to imposing higher taxes oncigarettes than economic efficiency might call for. These are:(a) Signs that those who start smoking under-evaluate the risk

involved. Higher taxes would act as a substitute for properevaluations (cf. Bolle, 1990);

Amitai Etzioni26

(b) Smokers show a desire to quit and taxes would help accomplishtheir desire;

(c) One might add that smoking often starts at a young age, beforepreferences are formed. Hence it is proper, as part of thesocietal re-education effort, to use taxes to discourage formationof these preferences, even if one holds that it is wrong to affectpeople's preferences once they have formed them.

CONCLUSION

In this chapter, I have used as a test criterion the ability to generatepublic policies that seem useful. We examined an approach thatencompasses both economic variables (of the kind neo-classicaleconomists typically study) and other social, psychological andpolitical factors, and found that this combination, called 'socio-economics', may yield more effective policies in several arenas.While it seems worthwhile to move toward the broader perspectiveafforded by socio-economics. it is also evident that additional workmust be done to develop fully what here has only been outlined.

REFERENCES

Andreano, R., & Siegfried, J. J. (eds) (1980). The economics of crime. New York:

Wiley.Baker, G. P., Jensen, M. C., & Murphy, K. J. (1988). Compensation and

incentives: Practice vs. theory. Journal of Finance, 43, 593-616.Becker, G. S. (1968). Crime and punishment: An economic approach. Journal of

Political Economics, 76, 169.Becker, G. S. (1985a). The economic approach to fighting crime. Business Week

(June 10th), p. 16.Becker, G. S. (1985b). Tailoring punishment to white-collar crime. Business

Week (Oct. 28th), p. 20.Bloom, G. F., & Northrup, H. R. (1981). Economics of Labour Relations.

Homewood, IL: Irwin.Bolle, F. (1990). Habit formation and long-term contracts. In S. E. G. Lea,

P. Webley, & B. M. Young (eds), Applied economic psychology in the 1990s(Vol. 2, pp. 643-661). Exeter: Washington Singer Press.

Coffee, J. C. (1980). Corporate crime and punishment: A non-Chicago view of theeconomics of criminal sanctions. American Criminal Law Review, 17,419-471.

Coleman, J. S., Hoffer, T., & Kilgore, S. (1982). High school achievement -Public, Catholic and private schools compared. New York: Basic Books.

Cook, P. J. (1980). Punishment and crime: A critique of current findingsconcerning the preventative effects of punishment. In R. Andreano & J. J.Siegfried (eds), The economics of crime (pp. 127-136). New York: Wiley.

27Socio-economics: Select policy implications

Cyert, R. M. & March, J. G. (1963). A behavioral theory of the firnt. EnglewoodCliffs, N.J.: Prentice-Hall.

Deci, E. L. (1972). The effects of contingent and non-contingent rewards andcontrols on intrinsic motivation. Organizational Behavior and HumanPerfonnance, 8, 217-229.

Etzioni, A. (1988). The moral dimension: Toward a new economics. New York:Free Press.

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