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An activity choice approach towards pricing of 1:1 personal services – on the omnipresence of interpersonal utility comparisons

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  • Mann, Stefan

Abstract

Currently, microeconomic theory is only of very limited use to understand price levels in the service sector. After a brief review of the literature on service pricing, this paper claims that price levels in the service sector are not only dependent on qualification levels, but also on the difference between the levels of non-monetary utility which customers on the one hand and providers on the other experience. An activity choice model shows why the ratio between utility differentials and prices should converge within a service segment. Theoretically, the approach finds a pragmatic alternative to the alleged impossibility of interpersonal utility comparisons in economic mainstream theory. Practically, it is able to explain the high price level for sex services compared with other service segments.

Suggested Citation

  • Mann, Stefan, 2015. "An activity choice approach towards pricing of 1:1 personal services – on the omnipresence of interpersonal utility comparisons," MPRA Paper 62516, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62516
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    References listed on IDEAS

    as
    1. Daniel Kahneman & Peter P. Wakker & Rakesh Sarin, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 375-406.
    2. Kevin W. S. Roberts, 1980. "Interpersonal Comparability and Social Choice Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 421-439.
    3. Peter G. Moffatt & Simon A. Peters, 2004. "Pricing Personal Services: An Empirical Study of Earnings in the UK Prostitution Industry," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 675-690, November.
    4. Elsner, Wolfram & Heinrich, Torsten & Schwardt, Henning, 2014. "The Microeconomics of Complex Economies," Elsevier Monographs, Elsevier, edition 1, number 9780124115859.
    5. Gevers, Louis, 1979. "On Interpersonal Comparability and Social Welfare Orderings," Econometrica, Econometric Society, vol. 47(1), pages 75-89, January.
    6. Stefan Mann, 2007. "Comparing Interpersonal Comparisons in Utility Theory and Happiness Research," Forum for Social Economics, Springer;The Association for Social Economics, vol. 36(1), pages 29-42, April.
    7. Adriaenssens, Stef & Hendrickx, Jef, 2010. "Sex, price and preferences. Unsafe sexual practices in prostitution markets of the Low Countries," Working Papers 2010/05, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    8. Mann, Stefan, 2013. "“Work”? On utility in the market and in the unpaid sphere," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 86-91.
    9. Susan Himmelweit, 2007. "The prospects for caring: economic theory and policy analysis," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(4), pages 581-599, July.
    10. Skander Essegaier & Sunil Gupta & Z. John Zhang, 2002. "Pricing Access Services," Marketing Science, INFORMS, vol. 21(2), pages 139-159, June.
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    More about this item

    Keywords

    activity choice; utility of work; service sector;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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