|(WP-05-S98) "Economics and Identity"|
George Akerlof and Rachel E. Kranton
Identity, one's sense of oneself as a particular type of person, is a strong motivation for behavior. This paper considers how identity alters standard economic analysis and affects economic outcomes. Identity is associated with socially constructed prescriptions, or rules, which define different types of people and how they should behave. With these prescriptions, particular actions evoke emotional responses in oneself and in others. This paper incorporates identity into a general model of behavior and constructs a simple model showing how identity may affect individual interactions. The paper applies these models to the economics of the workplace, the economics of education, the economics of violent crime, and the economic modeling of politics. In each of these examples, including identity substantively changes conclusions of previous economic analysis. Moreover, the analysis shows that changing the prescriptions is an important part of policy.