Valuing Altruism

It is no secret that economics gets some things wrong. Despite my own fairly heterodox views, I find that neoclassical economics offers one of the best tool kits for analyzing public policy. Unlike others, I am not averse to using dollars to capture what are non-monetary values.

A case in point is determining the value of altruism to the individual. First, I should mention that for the uber-rational folks, there is very little room for altruism; it simply does not fit into their model of rational maximization. Let us leave that aside for now for other questions. Particularly, why do we need to measure altruism and how can we measure it.

I would argue that without some understanding of how people value altruism, we can not estimate labor markets in general, and the public and not for profit sectors specifically. It’s common sense to assume that people select careers and specific jobs for a whole host of reasons, including salary, benefits, prestige, fit, and so on. Some of these values are fairly idiosyncratic and beyond measurement. Others are more difficult to measure, like altruism.

People enter careers in the public and not for profit sectors for various reasons, but most, if not all, do so for what I shall call its altruistic premium. The altruistic premium is that amount of non-monetary benefit received from working in these sectors. It should be obvious that the AP is not a specific amount, and will vary both with the individual as well as the job. In other words, it is extremely difficult to quantify.

But just because something is tough to measure does not mean we ought not endeavor to do so. What I would argue is that, in some measure, people are revealing their preference for altruism by accepting employment in a job whose wage is below that which their skills and education would receive in the labor market. Herein lies another layer of difficulty- how do we specify the labor market, do we include everything but the public and not for profit sector or do we include the entire labor market? If we opt for the latter, we might underestimate the value of altruism as the lower wages in the public and not for profit sector will push the market wage down. Though, if we instead look only to the private sector wage rate, we could overstate the value of the altruistic premium. This is so because there may be some other characteristic/trait of the person working in the public or not for profit sector that would diminish their market value.

Another measurement problem is that what I have labeled the altruistic premium might also include some other idiosyncratic values. For example, in some segments of the population, public service is highly valued as an end in itself. Therefore, people who are so motivated might be willing to take a lower than market wage more for the prestige of the position than for its altruistic premium.

Again, I am under no illusion that the altruistic premium would be easy to measure. But the value of such a measure is that it allows us a richer understanding of  labor market decisions. I would argue that it also has some carry over to the private sector. Some individuals for are altruistically inclined might opt for the private sector, yet choose an employer who has volunteer friendly policies. Or one that simply keeps the work week to forty hours, rather than sixty. Understanding how people make their labor market decisions has wide implications not only for public policy, but also holds pertinent information for private firms.

Now, back to the rational maximizer. I would argue that altruism is not in conflict with notions of maximization. We already assume that people include leisure time in their utility functions. I am not convinced that we ought to lump altruism into leisure, as I think the trade off is more complex than one of leisure/altruism v. work. Altruism could come at the price of both or either, really.

Hopefully the methodological difficulty does not keep mainstream economics for placing more emphasis on altruism.

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