An Economic Perspective on Selection, Optimization, and Compensation (SOC)

  • Jere R. Behrman


This chapter first presents and summarizes the standard economic model of individual human development and resource management. In this model, human development is viewed as a sequence of dynamic optimizing decisions under uncertainty that maximize the welfare of the decision maker period by period subject to the basic resource constraints (including outcomes of previous periods that were affected in part by the decision maker and resources that are given from the point of view of the decision maker including genetic endowments and the nature of the larger environment in which the decision maker operates), prices broadly defined (past, present, and expected), the distribution of future shocks including those related to health and mortality as well as to resource availability, and other aspects of the market, cultural, social, and policy environments in which the individual operates. Some attention is paid to important aspects of this formulation, such as whether individual preferences are assumed to be given or determined in these processes, how individual preferences are aggregated within collectives such as households, lifecycle aspects of such development including changes in the relevant decision makers who affect an individual (such as parents when children are very young, collective decisions between parents and children as the children age, primarily the adult children when they are prime-age adults, and their children and the broader society as they become elderly), information problems, when stochastic processes are resolved, and the role of characteristics such as risk aversion. The chapter then considers selection, compensation, and optimization with regard to three basic questions: (1) How do these concepts relate to the standard economic approach to lifespan human developmental processes and resource management? (2) Do these concepts raise questions regarding the formulation of the standard economic approach to lifespan human developmental processes and resource management? (3) Does the standard economic approach to lifespan human developmental processes and resource management raise questions about usefully modifying the use of these concepts?


Marginal Cost Human Development Production Function Marginal Benefit Marriage Market 
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© Springer Science+Business Media New York 2003

Authors and Affiliations

  • Jere R. Behrman
    • 1
  1. 1.University of PennsylvaniaPhiladelphiaUSA

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