In Akerlof and Kranton's identity economics framework, a person's utility depends on...
AOnly their own material consumption, as in standard theory
BTheir own material consumption, their social category, the prescriptions (norms) associated with that category, and the deviation between their actual behavior and those prescriptions
CHow much they earn relative to others in their social group
DTheir position in a social hierarchy determined by wealth alone
The identity utility function has three components beyond standard material payoffs: (1) the person's social category assignment, (2) the prescriptions — behavioral norms that define what members of each category should do, and (3) identity utility that increases with conformity to prescriptions and decreases with deviation. A man who becomes a nurse may earn a good salary (high material utility) but suffer identity disutility if his social category prescribes that men should not do 'women's work.' This framework explains why people forgo material gains to maintain identity consistency.
Question 2 True / False
Identity economics predicts that increasing financial incentives will always overcome identity-based resistance to behavioral change.
TTrue
FFalse
Answer: False
Identity utility can be strong enough to offset substantial material incentives. If conforming to group norms (e.g., not 'acting white' in certain peer groups, or maintaining masculine identity by avoiding female-coded work) provides enough identity utility, no feasible material incentive will change behavior. Moreover, explicit incentives can sometimes backfire by making the identity violation more salient — paying a man extra to take a nursing job may highlight rather than resolve the identity conflict. The model predicts that interventions targeting identity (changing which social category feels relevant, or shifting the prescriptions associated with a category) can be more effective than financial incentives alone.
Question 3 Short Answer
How does identity economics explain occupational segregation by gender beyond the standard discrimination and human capital explanations?
Think about your answer, then reveal below.
Model answer: Standard explanations attribute occupational segregation to employer discrimination (demand-side) or differences in human capital accumulation (supply-side). Identity economics adds a third mechanism: workers self-select out of occupations that conflict with their gender identity, even absent discrimination or skill differences. If social norms prescribe that certain jobs are 'for men' or 'for women,' entering a cross-typed occupation imposes identity disutility — a psychological cost from violating category prescriptions. This explains why segregation persists even when explicit discrimination is reduced and women have equal education: the identity costs of entering male-dominated fields (and vice versa) remain. It also explains why desegregation often requires changing norms (what 'women do') rather than just removing barriers.
Akerlof and Kranton formalize this by showing that in equilibrium, workers sort into gender-typed occupations even when firms are non-discriminatory and workers have identical skills. The identity payoff from conforming to prescriptions supplements wages in gender-typical occupations and subtracts from wages in cross-typed occupations, producing segregation as a rational response to identity incentives. Policy implications include the importance of role models (who shift prescriptions by demonstrating that crossing category boundaries is normatively acceptable) and the potentially self-reinforcing nature of segregation (fewer women in engineering makes engineering feel more 'male,' increasing identity costs for women who consider entering).