The Gifts of Athena by Mokyr Joel

Author:Mokyr, Joel
Language: eng
Format: epub, pdf
Publisher: Princeton University Press

Figure 4 : Income, Price, and Knowledge Effects in Mortality Decline

In practice, distinguishing between changes in household behavior and relative prices is not always easy, and decomposing observed changes between movements from Ej to E2 and E3 in terms of figure 4 in historical reality may prove tricky. In many cases, improved understanding simultaneously affected the demand and the supply sides, and the shifts were often coordinated.6 Yet this should not blind us to the fundamental difference between households responding to a change in their knowledge, which is a demand side phenomenon, and a change in relative prices or income faced by the household, which is on the supply side.

To distinguish between the alternatives, it is useful to set up the problem a little more formally.7 The advantage of this model, which is just a modification of standard consumer theory, is that it isolates with some precision the exact variables at play and their relationship with each other even if they cannot be measured directly in the historical record. As in standard theory, the consumer j maximizes a utility function:

(1) UJ = UJ(X1J…Xnj,HJLE>LD),

where His a composite variable of family life expectancy and health, the Xs are goods purchased in the market, the L s are time spent on leisure and domestic work respectively and consumption is subject to the usual budget constraints E x^ = Y and LE + LD + Lw = L* (time is allocated between leisure, housework, and work for income).8 The special characteristic of this setup is that i/is determined by the household production function:

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