G. Becker. ECONOMIC ANALYSIS AND HUMAN BEHAVIOR

(with abbreviations)

Economics is the ability to make the best use of life. George Bernard Shaw.

Although the originality of the approach to human behavior is hardly in doubt, it is not so easy to determine what exactly distinguishes it from the sociological, psychological, anthropological, political, and even genetic approaches. In this essay, an attempt is made to highlight its main distinguishing features.

Let us first turn for help to the definitions of various branches of scientific knowledge. There are at least three opposing definitions of economics still in use today. She is said to be studying: a) the distribution of material goods for the sake of satisfaction material needs; b) market sector; c) distribution of limited funds to meet competing goals.

The definition of economics in terms of material goods is the most narrow and least satisfactory. It does not give a correct picture of the market sector, nor of what economists do. After all, in the United States, for example, less than half of all those working for the market are now engaged in the production of material goods, and the non-material output of the service sector exceeds the output of goods in value terms. Moreover, economists are just as good at analyzing the supply and demand of stores, movies, or education as they are meat or cars. The persistence of definitions linking economics to material wealth is explained by the reluctance to subject certain types of human behavior to economic calculation.

The most general definition of economics is in terms of limited means and competing ends. It proceeds from the specific nature of the problems to be solved, and covers a much broader area than the market sector or. Scarcity and choice characterize all resources, in whatever form they are distributed - through the political process (including decisions about which industries to tax, how to quickly expand the money supply, and whether to go to war), through the family (including choosing a spouse and planning family sizes, determining the frequency of church attendance and the distribution of time between sleep and wakefulness), or in the organization of scientific research (including the allocation of time and mental effort by scientists among various scientific problems), and so on ad infinitum. This definition of economics is so broad that, instead of being a source of pride, it often confuses many economists and is usually promptly qualified to exclude the vast majority of non-market behavior.

All the above definitions of economic science define only the boundaries of its subject, but not a single one tells us anything about what it is as such. For in studying the market sector or the process of distributing scarce funds among competing ends, behavior that is obedient to duty and tradition, impulsive, maximizing, and whatever else may be of paramount importance.

Similarly, the definitions of sociology (as well as other social sciences) do little to distinguish its approach from all others. For example, the statement that sociology is the study of social aggregates and groups, as well as the causes and consequences of changes in the institutional and social organization, in no way separates its subject matter (not to mention the method) from the subject matter of, say, economic science. The claim that (Waters and Bunnell) is as general as the definitions of economics or sociology, and just as empty.

Let us therefore leave definitions alone, for I am convinced that economic theory as scientific discipline most of all, it differs from other branches of social science not in the subject, but in its approach. Indeed, many forms of behavior are the subject of study of several disciplines at once: for example, the problem of childbearing forms a special branch of sociology, anthropology, economic theory, history, human biology, and, perhaps, even political science. I argue that the economic approach is unique in its power because it is able to integrate many different forms of human behavior.

It is generally accepted that the economic approach involves maximizing behavior in a more explicit form and in a wider range than other approaches, so that it can be a question of maximizing the utility or wealth function, whether by family, firm, trade union or government agencies. In addition, the economic approach assumes the existence of markets, with varying degrees of efficiency coordinating the actions of different participants - individuals, firms and even entire nations - in such a way that their behavior becomes mutually consistent. It is also assumed that preferences do not change in any significant way over time and do not differ too much between rich and poor, or even among people belonging to different societies and cultures.

Prices and other market instruments regulate the distribution of scarce resources in society, thereby limiting the desires of participants and coordinating their actions. Within the framework of the economic approach, these market-based instruments perform most functions (if not all!), which are endowed in sociological theories.

Stability of preferences is assumed in relation to non-market goods and services like oranges, cars or medical care, but to the fundamental objects of choice that each household produces, using market goods and services, its own time and other resources for this. These deep preferences are determined by people's attitudes towards fundamental aspects of their lives, such as health, prestige, sensual pleasures, benevolence or envy, and by no means always remain stable when it comes to market goods and services. The premise of preference stability provides a reliable basis for predicting reactions to certain changes and prevents the researcher from being tempted to simply postulate a necessary shift in preferences, thus any obvious discrepancies with his predictions.

Maximizing behavior and stability of preferences are not just prerequisites, but can be derived from the concept of natural selection of suitable behaviors in the course of human evolution. Indeed, the economic approach and the theory of natural selection developed by modern biology are closely interconnected (recall that, according to both Darwin and Wallace, they were strongly influenced by the Malthusian theory of population) and represent, perhaps, different aspects a single, more fundamental theory.

Linked together, assumptions about maximizing behavior, market equilibrium, and preference stability, held firmly and relentlessly, form the core of the economic approach as I understand it. They underlie many of the theorems that grow out of this approach. About, for example, that (a) an increase in price leads to a decrease in the quantity of demand, whether it is the rise in the price of eggs, which reduces the demand for them, the rise in the price of children, causing them to fall, or the increase in waiting time in front of doctors' offices, which is one component of the full price of medical services; or that (b) an increase in price leads to an increase in the supply, whether it is an increase in the market price of meat, causing an increase in the number of animals raised and slaughtered, or an increase in rates wages married women, encouraging them to increase their participation in labor force; or that (c) competitive markets are more efficient than monopolized markets in satisfying consumer preferences; or that (d) the imposition of a tax on any commodity tends to reduce its production, whether it be an excise tax on gasoline, forcing a reduction in its consumption; punishment of criminals (which is, in fact, for crimes), ensuring a decrease in the level of crime; or a payroll tax that reduces the supply of labor in the market sector.

It is clear that the scope of the economic approach is not limited to material goods and needs alone, or even to the market sector. Prices—regardless of whether they are money prices in the market sector or shadow, imputed prices in the non-market sector—reflect opportunity cost use of scarce resources, and the economic approach predicts the same type of reactions to changes in both shadow prices and market prices. Take, for example, a person whose only scarce resource is a limited amount of his or her time. Time is used to produce a variety of products (included in his or her preference function) in order to maximize utility. Even outside the market sector, every product—directly or indirectly—has a marginal shadow price: I mean the time required to produce one additional unit of such a product. In equilibrium, the ratio of these prices should be equal to the ratio of the marginal utilities of the corresponding products. Most importantly, an increase in the relative price of any product, i.e., the time it takes to produce a unit of that product, will lead to a reduction in its consumption.

The economic approach does not assume that all participants in each market necessarily have complete information or make transactions that require no costs to conclude them. Incompleteness of information or the presence transaction costs should not, however, be confused with irrationality or inconsistency in behavior. The economic approach has led to the development of a theory of the optimal or rational accumulation of expensive information, which implies, for example, a greater investment in obtaining information when making important decisions compared to unimportant ones - say, when purchasing a house or getting married compared to buying bread or sofa. The information collected in this way is often far from complete because it is costly to obtain—a fact that the economics approach uses to explain behaviors that other approaches understand either as irrational or inconsistent behavior, or as traditional or as .

When clearly advantageous opportunities are missed by a firm, worker, or household, the economic approach does not take refuge in assumptions about their irrationality, contentment with already existing wealth, or convenient ad hoc shifts in the system of values ​​(that is, in preferences). On the contrary, he postulates the existence of costs, monetary or psychological, arising from attempts to take advantage of these favorable opportunities - costs that negate the supposed benefits and which are not so easy-minded observers. Of course, the postulation of such costs or the economic approach in the same, almost tautological way, in which the postulation of energy costs (sometimes unobservable) closes the energy system and saves the law of conservation of energy. Systems of analysis in chemistry, genetics, and other fields close in a similar way. Main question lies in how fruitful this or that method of the system is; The most important theorems that follow from the economic approach show that it closes in a way that is much more productive than a simple collection of empty tautologies, in large part because, as I have already noted, the premise of preference stability provides a basis for predicting reactions to a wide variety of changes.

Moreover, the economic approach does not require that individual agents necessarily be aware of their desire for maximization or that they be able to verbalize or otherwise articulate the reasons for persistent stereotypes in their behavior. Thus, it coincides in this with modern psychology, which attaches special importance to the subconscious, and sociology, which singles out explicit and latent functions (Merton). In addition, the economic approach does not make a conceptual distinction between important and unimportant decisions, say, those that relate to matters of life and death, on the one hand, and the choice of a coffee variety, on the other; or between decisions that are considered to evoke strong emotions and emotionally neutral ones (for example, choosing a spouse or planning for the number of children as opposed to buying paints); or between the decisions of people of different wealth, education, or social background.

Indeed, I have come to believe that the economic approach is all-encompassing, applicable to all human behavior - in terms of monetary or shadow, imputed prices, repetitive or one-time, important or unimportant decisions, emotionally charged or neutral goals; it applies to the behavior of rich and poor, patients and doctors, businessmen and politicians, teachers and students. The scope of the economic approach, understood in this way, is so wide that it covers the subject of economic science, if you follow its definition given above, which refers to limited means and competing ends. It is this understanding that is consistent with this broad, unreserved definition, as well as with Shaw's statement at the head of this essay.

The economic approach to human behavior is not new, even if we have in mind the non-market sector. Adam Smith often (but not always!) took this approach in explaining political behavior. Jeremiah Bentham made no secret of his conviction that the calculus of pleasure and pain is applicable to all human behavior: (Bentham, 1867). The calculation of pleasure and pain, he says, applies to everything we do, what we say, and is not limited to money considerations, repeated choices, insignificant decisions, and so on. Bentham applied his calculus to an extraordinarily wide range of human behavior, such that issues such as the punishment of criminals, prison reform, improved legislation, laws against usury, and the operation of the courts were on a par with the markets for goods and services. Although Bentham openly declared that the calculus of pleasures and pains applies to everything we do, just as to everything we do, nevertheless he was mainly interested in - he was first and foremost a reformer and never developed a theory that would explain the actual behavior of people and would have numerous verifiable consequences. He often bogged down in tautologies because he did not share the assumptions about the stability of preferences, and was more concerned with how to reconcile his calculus with any form of human behavior than with finding out what restrictions on behavior it imposes.

Marx and his followers took what they called the approach not only to market behavior but also to politics, marriage, and other forms of non-market behavior.

But for the Marxist, the economic approach means that the organization of production plays a decisive role, predetermining the social and political structure, and the main emphasis is on material goods, goals and processes, conflict between workers and capitalists, and the general subordination of one class to another. What I call has little in common with this point of view. In addition, the Marxist, like the Benthamite, tends to pay more attention to what should be, and often robs his approach of any predictive power, trying to sum up all events without exception under it.

Needless to say, the economic approach is not always equally successful in penetrating the essence of various forms human behavior and explain them. For example, so far he has not succeeded too much (as, indeed, all other approaches) in revealing the factors on which wars and many other political decisions depend. I am convinced, however, that this unimpressive result does not indicate the illegitimacy of the economic approach in this case, but mainly the insufficiency of the efforts made so far. For, on the one hand, the economic approach has not been systematically applied to the study of wars, and attempts to apply it to other types of political activity have begun only recently; on the other hand, our understanding of such seemingly equally cryptic forms of behavior as procreation, child rearing, labor force participation, and other decisions made in the family has been significantly enriched in last years through the systematic application of an economic approach.

The notion of the broad applicability of the economic approach finds support in the bountiful scientific literature that has emerged over the past twenty years, in which the economic approach is used to analyze, one might say, an infinitely diverse set of problems, including language development (Marschak), church attendance (Azzi and Ehrenberg), political activity (Buchanan and Tullock, 1962; Stigler, 1975), legal system (Posner, 1973; Becker and Landes, 1974), animal extinction (Smith, 1975), suicide (Hamermesh and Soss, 1974), altruism and social interactions (Becker, 1974, 1976; Hirshleifer, 1977), as well as marriage, fertility, and divorce (Schultz, 1974; Landes and Michael, 1977). In order to more clearly convey the originality of the economic approach, I will briefly dwell on several of its most unusual and controversial applications.

Good health and long life are important goals for most people, but a moment’s reflection is enough for each of us to see that these goals are far from the only ones: sometimes better health or longer life can be sacrificed because they enter into conflict with other goals. The economic approach implies that there is a lifespan at which the utility of an extra year of life is less than the utility lost as a result of the use of time and other resources to achieve it. Therefore, a person may be a heavy smoker or neglect physical exercise due to complete absorption in his work, and not necessarily because he is unaware of the possible consequences or processing of the information he has, but because the segment of life that he donates is not of sufficient value to him to justify the costs associated with abstaining from smoking or with less strenuous work. Such decisions would be made if life span were the only goal, but insofar as there are other goals, these decisions may turn out to be thoughtful in this sense as well.

According to the economic approach, therefore, most deaths (if not all!) are to some extent suicides - in the sense that they could be delayed if more resources were invested in life extension. Not only do interesting implications follow from this for the analysis of what is colloquially called suicide, but the generally accepted distinction between suicides and deaths is called into question. Again, the economic approach and modern psychology come to similar conclusions, since the latter emphasizes what underlies many deaths, as well as deaths caused by seemingly causes.

The economic approach does more than simply reinterpret, in the language familiar to economists, various forms of behavior that affect health, eliminating the possibility of erroneous interpretation with the help of a series of tautological judgments. It follows that both the state of a person's health and the quality of the medical care he receives will improve with an increase in his wage rate, that aging will cause deterioration in health while increasing medical costs, and that an increase in the level of education will contribute to improved health status, even though health care costs have been reduced. Neither these nor any other conclusions from the economic approach are necessarily to be taken as true, but they all seem to be consistent with the data we have.

According to the economic approach, a person decides to marry when the expected utility of marriage exceeds the expected utility of being single, or the extra cost of continuing to find a better match. In the same way, a married person decides to end it when the expected utility of returning to a single state or entering another marriage exceeds the loss in utility associated with divorce (including due to separation from children, division of jointly acquired property , court costs, etc.). Since many people are busy looking for a suitable couple, we can talk about the existence of a marriage market. Everyone tries to do everything that only he or she can do, while everyone else in this market behaves in the same way. We can say that people by individual married couples is an equilibrium if all those who, as a result of this sorting process, did not marry each other, could not, by doing this, improve the position of each other.

And in this case, numerous behavioral consequences follow from the economic approach. For example, he implies that there is a tendency to marry among people who are similar in IQ, educational level, skin color, social origin, height, and many other variables, but differ in wage rates and some other indicators. The finding that men with relatively high wages marry women with relatively low wages (all other variables held constant) is surprising to many, but appears to be consistent with the available data when adjusted for a large proportion married but unemployed women (Becker, 1973). It also follows from the economic approach that people with higher incomes marry younger and divorce less often than others, which is consistent with the data available to us (Keeley, 1977), but contradicts conventional wisdom. It also implies that an increase in the relative earnings of wives increases the likelihood of divorce, which partly explains the higher divorce rate among black families compared to white families.

In accordance with the Heisenberg uncertainty principle, the phenomena studied by physicists cannot be observed in state, because observation changes these phenomena themselves. An even stronger principle was put forward in relation to scientists in the field of social sciences, since they are not only researchers, but also participants in social processes and, therefore, as it was assumed, are not capable of objectivity in their observations. The economic approach takes a different but somewhat similar position, namely that people decide to devote themselves to science or some other intellectual or creative activity only when they can expect benefits from it - both monetary and psychological - exceeding what they could expect in other professions. Since this criterion holds true even in the choice of more ordinary professions, there is no reason why intellectuals should be less concerned about their reward, more concerned about the good of society and be more honest than everyone else.

From the economic approach, therefore, it follows that the increased demand of voters or various special interest groups for some or other intellectual arguments and conclusions will stimulate the growth of their supply, based on the theorem mentioned above about the effect of price increases on the volume of supply. In the same way, if an influx of funds from charitable or government funds is directed to the study of some, even the most ridiculous problems, there will be no end to applications for their research. What the economic approach considers to be the normal response of supply to changes in demand, others, when it comes to science and art, may be called intellectual or creative. This may be true, but attempts to draw a clear line between the market for intellectual and artistic services and the market for goods have resulted in inconsistency and confusion (see: Director, 1964; Coase, 1974).

The economic approach proceeds from the premise that criminal activity is the same profession to which people devote full or part-time work, like carpentry, engineering or teaching. People decide to become criminals for the same reasons that others become carpenters or teachers, namely because they expect that from the decision to become a criminal - the present value of the total sum of the differences between benefits and costs, both non-monetary and monetary - is superior to the occupation. other professions. Increasing the benefits or decreasing costs of criminal activity increase the number of people who become criminals, increasing - relative to other professions - from delinquency.

Thus, this approach assumes that criminal offenses such as theft or robbery are committed mainly by less wealthy people, not because of anomie or alienation, but because of a lack of general education and training, which reduces their participation in legal activities. Similarly, unemployment in the legal sector increases property crime (see: Ehriich, 1973), not because it arouses anxiety and cruelty in people, but because it reduces the number of legal professions. The number and severity of crimes among women increased compared to men (see: Bartel, 1976) because they began to participate in market activities, including criminal ones (see: Mincer, 1963).

The most controversial conclusion from the economic approach to the analysis of crime is that punishment, that is, that increasing the likelihood of catching criminals and their subsequent punishment, reduces the level of crime, because the income from it becomes smaller. If criminals correctly foresee the likelihood and severity of punishments, then the high rate of recidivism is not at all surprising and cannot be used to judge the failure of the punitive system, just as the income from carpentry with a high proportion of unemployed or injured carpenters cannot be concluded that the scale of unemployment or industrial injuries among carpenters does not affect their number in any way. To continue the analogy, criminal rehabilitation programs have generally failed (see: Martinson, 1974) for the same reason that retraining programs in the legal sector have failed: if people chose their professions, including criminal ones, deliberately, for their decisions cannot be strongly influenced either by preaching or by minor changes in employment prospects for other occupations.

Punishments deter both crimes like rape and terrorism (see Landes 1975) and economic crimes like embezzlement and bank robbery (Ozenne 1974). Among other things, this conclusion calls into question references to sanity or insanity, the presence or absence of intent, and other distinctions used in the conduct of investigations and sentencing of criminals. The economic approach means, for example, that death sentences should reduce the number of murders more than the punishments for this crime that are currently applied in the United States and many other Western countries (see: Ehriich, 1975, 1977; National Academy of Science, 1977 ).

I am not suggesting that the economic approach is used by all economists in the study of all aspects of human behavior, or even by most economists in the study of the main part of it. Indeed, many economists can't resist the temptation to hide their own lack of understanding behind rants about irrationality of behavior, enduring ignorance, stupidity, ad hoc shifts in value systems, and the like, which, under the guise of a balanced position, simply means of his defeat. For example, when Broadway theater owners charge prices at which audiences have to wait a long time to buy tickets, the argument begins that the theater owners have no idea about the profit-maximizing price structure, not that the researcher has no idea. how existing prices contribute to profit maximization. When only a small part of the variation in earnings can be explained, the unexplained remainder is attributed to luck or chance rather than to the researcher's ignorance or inability to appreciate additional systematic factors. The coal industry is declared inefficient because it follows from some cost and output calculations in it (see: Henderson, 1958), although an equally plausible alternative hypothesis would be to assume that the calculations themselves contain serious errors.

Wars are supposed to be started by madmen, and generally behavior in the sphere of politics is governed by stupidity and ignorance. Let us recall at least Keynes' statement about (Keynes, 1978, p. 458). And although Adam Smith, the founder of the economic approach, interpreted some laws and regulations in the same way as market behavior, even he, without much thought, clumsily dealt with other laws and regulations as products of stupidity and ignorance.
There is no shortage of references in the economics literature to ad hoc convenience shifts in preference scales to explain behavior that baffles the researcher. Education is said to change the structure of preferences (whether they are about goods and services, electoral candidates, or desired family size), rather than the level of real incomes or the relative costs of different choices. Businessmen, as is commonly thought, begin to broadcast about social responsibility businesses because their attitudes are influenced by the public discussion of these issues, not because they need all this verbal husks to maximize profits, given the prevailing climate of state interventionism in society. Or another example: they claim that advertisers profit from the malleability of consumer preferences, but no attempt is made to explain why, say, advertising is much more widespread in some industries than in others, why its importance in one or another different industry changes over time and why it is used in both highly competitive and monopolized industries.

Naturally, what is a temptation for economists nominally committed to the economic approach turns into an irresistible temptation for those who are not familiar with either this approach or with scientific developments in the field of sociology, psychology or anthropology. With ingenuity worthy of a better application, every conceivable behavior is attributed to the power of ignorance and irrationality, frequent inexplicable shifts in value systems, customs and traditions, unknown as existing social norms or categories, and.

I am not going to argue that concepts such as ego and id, or social norms devoid of scientific content. I would only like to point out that, like many concepts in economic literature, they act as instruments of temptation and lead to fruitless explanations of human behavior ad hoc. It is possible, for example, without hesitation, to prove at the same time that the sharp increase in the birth rate in the late 1940s and early 1950s was due to a renewed desire to have large families, and that the long decline in the birth rate, which began just a few years later, was due to the unwillingness to embarrass oneself a large number of children. Or argue that people in developing countries are blindly copying the American attitude to time, while it is much more fruitful to explain the widespread desire among them to save time by its increased economic value (see: Becker, 1965). More opinions are expressed general order, according to which traditions and customs will be eradicated in developing countries, because the youth there are seduced by the American way of life; it does not pay attention to the fact that customs and traditions are extremely useful in a relatively stable environment, but often turn into a hindrance in a dynamic world, especially for young people (see: Stiglerand Becker, 1977).

Even those who are convinced that the economic approach is applicable to all forms of human behavior recognize that many non-economic factors are also important. Obviously, mathematical, chemical, physical and biological laws have a huge impact on human behavior, affecting the structure of preferences and production possibilities. That the human body is subject to aging; that the population growth rate is equal to the birth rate plus the migration rate minus the death rate; that children of intellectually more gifted parents have better mental abilities than children of less intellectually gifted parents; that people must breathe in order to live; that hybrid varieties of plants bring one crop at one external conditions and completely different with others; that deposits of gold and oil are located only in certain parts of the globe and these minerals cannot be made from wood; or that the assembly line operates according to certain physical laws - all this and much more affects the process of choice, the production of people and things, and the evolution of society.

However, admitting this is not the same as claiming the nature of, say, birth, migration, and death rates, or the rate of spread of hybrid crop varieties, on the grounds that the economic approach fails to explain them. In fact, valuable conclusions about the number of children in different families were obtained on the assumption that families seek to maximize utility with a stable preference structure and under restrictions. Which are set by prices and available resources, although it was recognized that PRICES and the amount of resources depend to some extent on the timing of childbearing age and other non-economic variables (see: Becker, 1960, Becker and Lewis, 1973; Schultz, 1974). Similarly, it turned out that the rate of spread of hybrid varieties of corn in various parts of the United States can be quite satisfactorily explained on the basis of the assumption of profit maximization by farmers: new hybrid varieties were more profitable and therefore developed earlier in areas with more favorable weather, soil and other conditions. natural conditions (Griliches, 1957).

Accounting for a variety of non-economic variables is as necessary to explain human behavior as the use of the achievements of sociology, psychology, sociobiology, history, anthropology, political science, law and other disciplines. Although I claim that the economic approach provides a productive framework for understanding all human behavior as a whole, I do not want to belittle the contribution of other sciences, much less to suggest that the contribution made by economists is more important than all others. For example, preferences that are taken as data and assumed to be stable in the economic approach are analyzed by sociology, psychology, and, in my opinion, most successfully by sociobiology (see: Wilson, 1975). How did preferences become the way they are now? How did their apparently slow evolution proceed in time? These questions are directly related to the prediction and explanation of human behavior. The value of other scientific disciplines is not diminished even by the complete and enthusiastic acceptance of the economic approach.

At the same time, I would not like to soften the conclusions flowing from my reasoning in order to ensure that they receive a faster and more favorable reception. I claim that the economic approach offers a fruitful unifying framework for understanding all human behavior, although I acknowledge, of course, that many of its forms have not yet been explained and that the inclusion of non-economic variables, as well as the use of analytical techniques and the achievements of other disciplines, contribute to a better understanding of human behavior. It is the economic approach that is comprehensive, although some important concepts and methods of analysis are being developed and will be developed by other scientific disciplines.

The main point of my reasoning is that human behavior should not be divided into some separate compartments, in one of which it is maximizing, in the other it is not, in one it is motivated by stable preferences, in the other by unstable ones, in one it leads to accumulation of the optimal amount of information, in another does not lead. One might rather think that all human behavior is characterized by participants maximizing utility given a stable set of preferences and accumulating optimal amounts of information and other resources in a variety of diverse markets.

If my reasoning is correct, then the economic approach provides a holistic scheme for understanding human behavior, to which Bentham, Marx, and many others have long but unsuccessfully sought to develop.

NOTES

(rees); (article in, 3d ed., p.624).
Pigou said:
(Robbins); (Rees).
Jeremy Bentham stated: . He adds, however, that.
Categories of psychoanalysis.

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G. Becker's economic approach
Gary S. Becker, instead of defining the subject of economics, defines a special approach to economics. He proves that economics as a scientific discipline is most different from other industries. social sciences not by the subject, but by its approach.
Many forms of human behavior are the subject of study of several disciplines at once. Thus, the problem of fertility forms a special section of sociology, anthropology, economic theory, history, human biology, and, perhaps, even political science. G. Becker argues that the economic approach is unique in its power, because it is able to integrate many different forms of human behavior.

Economic approach

The economic approach involves maximizing behavior in a more explicit form and in a wider range than other approaches, so that it can be a matter of maximizing the utility or wealth function, whether by family, firm, trade union, or government agencies. In addition, the economic approach presupposes the existence of markets that, with varying degrees of efficiency, coordinate the actions of different participants - individuals, firms, and even entire nations, in such a way that their behavior becomes mutually consistent.
It is also assumed that preferences do not change much over time and do not differ greatly between rich and poor, or even among people belonging to different societies and cultures.
Prices and other market instruments regulate the distribution of scarce resources in society, thereby limiting the desires of participants and coordinating their actions. In the economic approach, these market instruments perform most, if not all, of the functions that "structure" is assigned to in sociological theories.
Stability of preferences is assumed not in relation to market goods and services like oranges, cars or medical care, but in relation to the basic objects of choice that each household produces using market goods and services, its own time and other resources. These deep preferences are determined by people's attitudes towards fundamental aspects of their lives, such as health, prestige, sensual pleasures, benevolence or envy. However, preferences do not always remain stable in relation to specific goods and services, the choice of which is determined by the cultural structure, and not by the natural needs of a person.
The premise of the stability of human preferences provides, according to G. Becker, a reliable basis for predicting reactions to change. The stability of preferences prevents the researcher from being tempted to simply postulate a necessary shift in preferences, thus "explaining" any apparent discrepancies with his predictions.
Maximizing behavior and stability of preferences are prerequisites, but can be derived from the concept of natural selection of suitable behaviors in the course of human evolution. Indeed, the economic approach and the theory of natural selection developed by modern biology are closely interrelated. They, according to some scientists, may represent different aspects of a single, more fundamental theory.
Linked together assumptions about maximizing behavior, market equilibrium and stability of preferences, carried out firmly and adamantly, form the core of the economic approach in the understanding of G. Becker. They are at the heart of many theories that grow out of this approach, such as the following:
1. An increase in price leads to a reduction in the volume of demand.
2. An increase in price leads to an expansion in the volume of supply.
3. Competitive Markets able to satisfy consumer preferences more effectively than monopolized ones.
4. Establishing a tax on any product leads to a decrease in its production.

Scope of applicability of the economic approach

The scope of applicability of the economic approach according to G. Becker is not limited to goods and needs, or the market sector. Prices—whether the money prices of the market sector or the imputed prices of the non-market sector—reflect the opportunity cost of using scarce resources.
The economic approach predicts the same type of reactions to changes in both imputed and market prices. For example, a person may have a single rare resource - time. A person divides time between the production of various products and leisure in order to maximize overall utility.
Even outside the market sector, every good, directly or indirectly, has a marginal imputed price. This refers to the time required to produce one additional unit of such a good. Under equilibrium conditions, the ratio of these prices should be equal to the ratio of the marginal utilities of the corresponding goods. Most importantly, an increase in the relative price of the time it takes to create a unit of that good will lead to a reduction in its consumption.
The economic approach does not assume that all participants in each market necessarily have complete information or make transactions that require no costs to conclude them. However, incomplete information or transaction costs should not be confused with irrationality or inconsistent behavior.
The economic approach has led to the development of a theory of the optimal or rational accumulation of expensive information, which implies, for example, a greater investment in obtaining information when making important decisions compared to insignificant transactions. For example, buying a house or getting married requires more information than buying bread or a sofa.
The information collected is often far from complete because it is costly to obtain. This fact is used in the economic approach to explain those forms of behavior that in other approaches are understood either as irrational or inconsistent behavior, or as traditional, or as "irrational".
When clearly advantageous opportunities are missed by a firm, worker, or household, there is no need to assume that they are irrational, content with existing wealth, or convenient shifts in preferences. The economic approach postulates the existence of costs, monetary or psychological, of trying to take advantage of these favorable opportunities - costs that reduce the perceived benefits, and which are not easily "seen" by outsiders.
The postulation of such costs "closes" or "completes" the economic approach in the same way that the postulation of energy costs closes the energy system and saves the law of conservation of energy in physics. Systems of analysis in chemistry, genetics, and other fields close in a similar way.
The main question is how fruitful this or that way of “completing” the system is. The most important theorems that follow from the economic approach show that it closes in a way that is much more productive than simple theorizing, in large part because the premise of preference stability provides a basis for predicting responses to a wide variety of changes.
The economic approach does not require that individual agents necessarily be aware of their desire for maximization. Thus, it coincides in this with modern psychology, which attaches special importance to the subconscious, and sociology, which singles out explicit and latent functions. The economic approach does not make a conceptual distinction between important and unimportant decisions, between the decisions of people with unequal wealth, education or social background.
G. Becker came to the conclusion that the economic approach is comprehensive. Becker believes that it applies to all human behavior in terms of market or implied prices, repetitive or one-time, important or unimportant decisions, emotionally charged or neutral goals; it applies to the behavior of rich and poor, patients and doctors, businessmen and politicians, teachers and students.
The scope of the economic approach, understood in this way, is so wide that it closes the subject of economics, if we follow the definition given earlier, which speaks of limited means and competing ends. It is this understanding that is consistent with this broad, unqualified definition.
The economic approach to human behavior is not new, even in the non-market sector. Adam Smith often took this approach in explaining political behavior.
The economic approach is not always equally successful in penetrating the essence of various forms of human behavior and explaining them. But behaviors as difficult to interpret as childbearing, child-rearing, labor force participation, and other family decisions have been enriched by the systematic application of the economic approach.
The economic approach is used to analyze an infinitely diverse set of problems. These include language development, church attendance, political activity, legal system. This is altruism, and social interactions, marriage, fertility, divorce, crime.
According to G. Becker, human behavior should not be divided into some separate compartments, in one of which it is maximizing, in the other - not, in one it is motivated by stable preferences, in the other - by unstable ones, water leads to the accumulation of an optimal amount of information , does not result in the other.
All human behavior is characterized by the fact that participants maximize utility with a stable set of preferences and accumulate optimal amounts of information and other resources in a variety of different markets. If we accept the concept of G. Becker, then the economic approach provides a holistic scheme for understanding human behavior, which many economists have long, but unsuccessfully, sought to create.

- Do you often work, father? the doctor asked the priest at the funeral.
“By your grace,” answered the priest with a bow.

A. E. Izmailov. Notes

Personnel management activities - purposeful impact on the human component of the organization, focused on bringing the capabilities of the personnel and the goals, strategies, conditions for the development of the organization into line.

One of the most important components of management activity - personnel management, as a rule, is based on the concept of management - a generalized idea (not necessarily declared) about the place of a person in an organization. In the theory and practice of managing the human side of an organization, four concepts can be distinguished that developed within the framework of three main approaches to management - economic, organic and humanistic.

3.1. Economic approach

We are all miserable slaves of the stomach. Don't try to be moral and
fair, friends! Watch your stomach closely
nourish it with understanding and care. Then satisfaction and
virtue will reign in your heart without any effort on your part;
you will become a good citizen, a loving husband, a gentle
father - a noble, pious man.

Jerome K. Jerome. three in a boat

The economic approach to management gave rise to the concept use labor resources . Within the framework of this approach, the leading place is occupied by technical (in the general case, instrumental, i.e., aimed at mastering labor techniques), and not managerial training of people at the enterprise. Organization here means the ordering of relations between clearly defined parts of the whole, having a certain order. In essence, an organization is a set of mechanical relationships, and it must act like a mechanism: algorithmic, efficient, reliable and predictable.

Among the main principles of the concept of the use of labor resources are the following:

• ensuring the unity of leadership - subordinates receive orders from only one boss;
• adherence to a strict managerial vertical - the chain of command from the boss to the subordinate descends from top to bottom throughout the organization and is used as a channel for communication and decision-making;
• fixing the necessary and sufficient amount of control - the number of people subordinate to one boss should be such that this does not create problems for communication and coordination;
• observance of a clear separation of the headquarters and line structures of the organization - staff personnel, being responsible for the content of activities, under no circumstances can exercise the powers vested in line managers;
• achieving a balance between power and responsibility - it makes no sense to make someone responsible for any work if he is not given the appropriate authority;
• ensuring discipline - submission, diligence, energy and manifestation of external signs of respect must be carried out in accordance with accepted rules and customs;
• achieving subordination of individual interests common cause through firmness, personal example, honest agreements and constant monitoring;
• ensuring equity at every level of the organization, based on goodwill and fairness, to inspire staff to perform their duties effectively; a well-deserved reward that boosts morale, but does not lead to overpayment or remotivation.

In table. 3.1 presented short description economic approach to management.

Table 3.1. Characteristics of the conditions of efficiency and special difficulties in the framework of the economic approach

Efficiency Conditions	Special difficulties
A clear task to complete	Difficulty adapting to changing conditions
The environment is quite stable	Clumsy bureaucratic superstructure (strict predetermination and hierarchy of the management structure, which makes it difficult for the performers to make creative and independent decisions when the situation changes)
Production of the same product	If the interests of employees take precedence over the goals of the organization, undesirable consequences are possible (since the motivation of personnel is reduced solely to external stimulation, even minor changes in the incentive scheme are enough for unpredictable consequences)
The person agrees to be a part of the machine and behaves as planned	Dehumanizing impact on workers (the use of limited staff capabilities can be effective in low-skilled labor)

Previous

II
HR concepts

Listen to the riddle, - said the Great Python, finally deciding to dispel the impression of the rabbit's impudent cries, - it's a joke ... What kind of rabbit can become a boa constrictor?
The boas began to think. Some decided that the king, with the help of this riddle, was looking for future traitors among them, and therefore, just in case, they decided to remain silent. Others made more or less plausible assumptions. But no one guessed the correct answer.
- Answer! Answer! - the boas began to scream.
- Well, - said the Great Python, - here's your answer: a rabbit swallowed by a boa constrictor can become a boa constrictor.
- But why, O King? - asked the boas.
- Because a rabbit processed by a boa constrictor turns into a boa constrictor. This means that boas are rabbits at the highest stage of their development.

Fazil Iskander. Rabbits and boas

Chapter 3 Basic approaches to personnel management

Do you often work, father? the doctor asked the priest at the funeral.
“By your grace,” answered the priest with a bow.

A. E. Izmailov. Notes

Personnel management activities are a targeted impact on the human component of the organization, focused on bringing the capabilities of the personnel and the goals, strategies, and conditions for the development of the organization into line.

One of the most important components of management activity - personnel management, as a rule, is based on the concept of management - a generalized idea (not necessarily declared) about the place of a person in an organization. In the theory and practice of managing the human side of an organization, four concepts can be distinguished that developed within the framework of three main approaches to management - economic, organic and humanistic 1 .

3.1. Economic approach

We are all miserable slaves of the stomach. Don't try to be moral and
fair, friends! Watch your stomach closely
nourish it with understanding and care. Then satisfaction and
virtue will reign in your heart without any effort on your part;
you will become a good citizen, a loving husband, a gentle
father - a noble, pious man.

Jerome K. Jerome. three in a boat

The economic approach to management gave rise to the concept use of labor resources. Within the framework of this approach, the leading place is occupied by technical (in the general case, instrumental, i.e., aimed at mastering labor practices), rather than managerial training of people in the enterprise. Organization here means the ordering of relations between clearly defined parts of the whole, having a certain order. In essence, an organization is a set of mechanical relationships, and it must act like a mechanism: algorithmic, efficient, reliable and predictable.

Among the main principles of the concept of the use of labor resources are the following:

• ensuring the unity of leadership - subordinates receive orders from only one boss;
• adherence to a strict managerial vertical - the chain of command from the boss to the subordinate descends from top to bottom throughout the organization and is used as a channel for communication and decision-making;
• fixing the necessary and sufficient amount of control - the number of people subordinate to one boss should be such that this does not create problems for communication and coordination;
• observance of a clear separation of the headquarters and line structures of the organization - staff personnel, being responsible for the content of activities, under no circumstances can exercise the powers vested in line managers;
• achieving a balance between power and responsibility - it makes no sense to make someone responsible for any work if he is not given the appropriate authority;
• ensuring discipline - submission, diligence, energy and manifestation of external signs of respect must be carried out in accordance with accepted rules and customs;
• achieving the subordination of individual interests to a common cause with the help of firmness, personal example, honest agreements and constant monitoring;
• ensuring equality at every level of the organization, based on goodwill and fairness, to inspire staff to effective execution their duties; a well-deserved reward that boosts morale, but does not lead to overpayment or remotivation.

In table. 3.1 provides a brief description of the economic approach to management.

Table 3.1. Characteristics of the conditions of efficiency and special difficulties in the framework of the economic approach

Efficiency Conditions	Special difficulties
A clear task to complete	Difficulty adapting to changing conditions
The environment is quite stable	Clumsy bureaucratic superstructure (strict predetermination and hierarchy of the management structure, which makes it difficult for the performers to make creative and independent decisions when the situation changes)
Production of the same product	If the interests of employees take precedence over the goals of the organization, undesirable consequences are possible (since the motivation of personnel is reduced solely to external stimulation, even minor changes in the incentive scheme are enough for unpredictable consequences)
The person agrees to be a part of the machine and behaves as planned	Dehumanizing impact on workers (the use of limited staff capabilities can be effective in low-skilled labor)

Accounting and analytical approach

Depending on the method of occurrence, within the framework of the accounting and analytical approach, the following are distinguished:

• internally generated goodwill;
• acquired goodwill.

Internally generated goodwill can be defined as the potential built up over the years in organizing and running a business. As noted, from a realist point of view, goodwill is a component present value every company. This very important provision emphasizes that goodwill is inherent in any company that is operating and can be bought. If after the purchase of a company a new asset appears in the consolidated balance sheet, then it is obvious that it existed before the purchase. And the very fact of the sale is by no means the reason for the emergence of this asset, it only makes it possible to evaluate the existing goodwill.

From a nominalist perspective, in contrast, internally generated goodwill does not meet the recognition criteria in financial reporting, as it does not have a reliable and reliable valuation. And, indeed, the costs associated with the creation of this object are difficult to identify. Internally created goodwill is formed over the years, during the entire period of the company's existence, and therefore its assessment is constantly refined and changed. This view is currently dominant in the field accounting, but it is impossible to declare its absolute irrefutability.

Although internally generated goodwill is not formally reflected in the balance sheet, in reality it is constantly valued by the market, which is reflected in the market value of the company's shares. The higher the goodwill value, the higher the price of the securities. Therefore, by acquiring shares in a company, an investor pays for its goodwill.

From this point of view, the existence of internally generated goodwill is obvious, it is only a matter of valuing it. In theory, internally generated goodwill can be calculated for any company. If a company does not list its shares on a stock market, then the valuation of internally generated goodwill may be based on:

Or on discounting expected future superprofits

Or on the capitalization of excess profits (more on this in paragraph 4.3).

If the company lists its shares on the stock market, then the method proposed by F. Pixley can be used to evaluate the internally created goodwill. Its essence boils down to the following (see Fig. 1.2).

It is assumed that the market price of shares is a market assessment of the value of shares as already earned retained earnings and the discounted value of a portion of future excess profits.

Market share price

to the

number of shares

Rice. 1.2. The concept of determining the value of internally generated goodwill according to F. Pixley

Today, to resolve this issue, it is proposed to use the data of the liquidation balance sheet, compiled in the conditions of fictitious liquidation of the company. In this case, goodwill will be equal to the difference between the company's market capitalization and its value. net assets in market value. If this difference is positive, it just means that the market values ​​the company higher than the simple sum of its net assets, i.e. the company has some formally unaccounted for asset (internally generated goodwill). Otherwise, it may become the target of a hostile takeover from outside to sell off its assets piecemeal, since negative goodwill means that the total market value of the assets exceeds the price at which the market values ​​the company.

Therefore, for companies that list their shares on the stock market, the periodic calculation of internally created goodwill is very useful, including as a preventive measure, identifying a kind of indicator of a safety margin before a possible hostile takeover. Companies with a large positive value goodwill may not worry to some extent about the possibility of a hostile takeover from outside and not take special costly measures to protect against raiders.

Acquired goodwill stands out as opposed to internally created within the framework of the accounting and analytical approach.

Acquired goodwill can be defined as an asset arising from the purchase (acquisition) of a company, resulting from the excess of the purchase price over the buyer's interest in the fair value of identifiable assets and liabilities, embodying the buyer's expectation of future economic benefits.

At first glance, goodwill meets all the necessary criteria for defining an asset as a resource controlled by the company as a result of past events from which the company expects economic benefits in the future. Namely:

• goodwill represents future economic benefits, since the buyer acquires the company for a lot of money in the hope that it will bring him excess profits in the future;
• control over economic benefits is ensured by the ability of the acquiring company to manage the acquiring company;
• past transactions or events are facts of economic life, as a result of which the acquiring company gained control over the object of interest to it.

Despite the fact that most accountants tend to treat goodwill as an asset, we should not forget that this asset has a very specific nature. It stands apart even among intangible assets, to which it is customary to refer. While intellectual property, trademarks, know-how, despite their qualitative heterogeneity, have common features, goodwill differs sharply from them. This raises the question of the appropriateness and legality of classifying goodwill as an intangible asset.

In support of this thesis, the following arguments can be cited:

• the absence of intangible assets of tangible content is conditional to a certain extent. Of course, a license is not a machine, not a building, but a issued license can be taken in hand. Many trademarks, brands are recognizable all over the world, there is a material shell and know-how, presented in the form of formulas, descriptions. But the lack of materiality in goodwill is indisputable. The goodwill of a company can be recognized worldwide, but it is impossible to specify the place where the company hides it or, conversely, puts it on public display;
• unlike other intangible assets, goodwill cannot be transferred, gifted or sold separately. It cannot be an independent object of the transaction, since it does not belong to the company on the basis of ownership, goodwill cannot be alienated, just as such moral categories as the soul and reputation of a person cannot exist separately from it. Goodwill is inherent in the entire company and is inseparable from it. This, perhaps, is its main difference from other intangible assets. Goodwill is an unidentifiable asset;
• all intangible assets have a valuation, which, as a rule, is determined by the amount actual costs associated with the acquisition or creation. But the cost meter of goodwill often turns out to be conditional: “In the reports of English companies, you can find the article “Goodwill”, which contains a symbolic amount of 1 f. Art., with a balance meter of 1000 f. Art. " . This means that goodwill exists or has existed, but its value is not determined or written off. The Goodwill item may remain in the balance sheet even if it is fully depreciated.

That is why it is impossible to put an equal sign between the intangible essence of goodwill and its attribution to intangible assets. Other examples can be cited to confirm this fact, for example, receivables, in fact, are also an intangible item in the same way as deferred expenses, but they are not included in intangible assets.

Acquired goodwill, depending on the degree of control (interest, control over which the buyer receives as a result of the purchase transaction) is classified:

• for full goodwill;
• maternal goodwill;
• minority goodwill.

Full goodwill arises in the event of establishing full control over all assets and liabilities of the target company (acquisition object), upon acquisition of a 100% share. If the buyer acquires a share of less than 100%, the consolidated financial statements will not reflect the full value of the acquired company's goodwill, but only part of it - the parent company's goodwill. Minority goodwill in this case refers to the share of goodwill attributable to minority shareholders. More about this in paragraph 2.2.

From the standpoint of different balance theories within the framework of the accounting and analytical approach, the following stand out:

• static goodwill;
• dynamic goodwill;
• actuarial goodwill.

Each conceptual construction, any methodological approach, any theoretical construction depends on the purpose of the one who organizes this accounting observation. So, if the goal is to assess the solvency of the company, then they resort to a static accounting system. If it is necessary to identify the success of the company, its economic results (that is, to correctly assess the profit or loss, which is especially important for the owners of the company), then they resort to a different system of views, called dynamic accounting. The methodology for constructing static and dynamic balance sheets also influences the nature of the category under study, making it possible to distinguish between static and dynamic goodwill (more on this in paragraph 2.1).

When constructing a static balance, they proceed from the principle of fictitious liquidation of the company. This principle involves the use of a liquidation valuation that would be paid for the company's assets (and for each asset separately) if it were to be liquidated. Therefore, proponents of a static balance insist on using current market prices, which will correspond to the value obtained as a result of fluctuations in supply and demand in the market for each item considered individually. According to this concept, goodwill cannot be considered as an asset, because it cannot be an object of sale and purchase separately from its carrier - the company as a whole. Therefore, static goodwill should be written off as soon as it arises as a reduction in the financial result.

The basics of dynamic accounting were first put forward by J. Savary in 1675 in his work “The Perfect Merchant” (Le parfait n? gociant ou Instruction g? n? pays ?trangers). Two centuries later, these ideas were formalized into a rigorous theory by O. Schmalenbach. In this dynamic concept, goodwill has full right existence, because it has a huge impact on the calculation of the financial result. The asset of the dynamic balance shows everything that has one or another impact on the financial result. In accordance with this principle, in addition to real physical assets, such as dynamic goodwill appear in the balance sheet. Dynamic goodwill is a depreciable asset. Let's look at the differences between static and dynamic goodwill with an example.

Example 1.1

Company A acquires Company B for CU2,000. Company B keeps records of:

• based on the principles of the theory of static accounting (Table 1.1);
• based on the principles of the theory of dynamic accounting (Table 1.2).

Market value of assets and liabilities at the date of purchase: non-current

assets - CU 900, current assets - CU 1,300. Accounts payable - CU 500

Algorithm for determining the value of static goodwill:

Investment = CU 2,000;

Net Asset Value = Carrying Value of Assets - Accounts Payable = CU2,200 - CU 500 = CU 1,700 Book value of assets = Fair market value of assets;

Static goodwill = CU2,000 - CU 1,700 = CU 300

Static goodwill is written off at the time of acquisition to the financial results of the parent company.

Company B's static balance sheet at the date of purchase

In the dynamic balance sheet, assets are valued at cost, which amounted to the date of purchase, respectively: non-current assets - CU 500, current assets - CU 1,000, accounts payable - CU 500.

Dynamic balance of company "B" on date)" purchases

Table 1.2

Algorithm for determining the value of dynamic goodwill:

• Investment = CU 2,000;
• Net Asset Value = Carrying Value of Assets - Accounts Payable = CU1,500 - CU 500 = CU 1,000;
• Dynamic goodwill = CU2,000 - CU 1,000 = CU 1,000

Dynamic goodwill will be reflected in the asset balance sheet of the parent company and will be amortized over the long term, thereby determining financial results over a number of periods.

However, neither static nor dynamic accounting can give an idea of ​​the company's property in the market assessment as a whole complex. With dynamic accounting, this is not possible, because it studies only the cost of invested capital (regardless of its value in the market). Static accounting also cannot solve this problem, since it provides a balance in which different kinds assets are presented in a market valuation, but at the same time we are talking on the measurement of each individual asset. This type of evaluation is not

has nothing to do with the valuation of an enterprise in terms of its sale as a property complex.

To find out the value of the company, its property as a whole, it is necessary to apply a completely different methodology, which is called the actuarial concept.

An actuarial balance sheet is designed to determine and compare the present value of a company at different points in time.

The present value of the company at a certain point is equal to the sum of the discounted net cash flows that can be received in the future from the invested capital. At the same time, net cash flows are defined as the difference between cash receipts (mainly cash proceeds from sales) and cash payments associated with these sales (purchase of raw materials, payment for services, etc.). The discount rate is the percentage of average profitability for a given period of time and for a given type of company.

It can also be said that the present value of a company in this moment time is the amount of capital that the cash flows generated by the company could replace in the future.

Consider how the company's balance sheet will change if it is built according to the principles of actuarial accounting.

Example 1.1 (continued)

During the reporting period, the company's forward-looking expectations could generate two cash flows - CU1,100. and CU 880 At a discount rate of 10% (the average rate of return in the market), the present value of these cash flows to date would be, respectively: CU1,000. = (CU 1,100 /1.1) and CU 800 = (CU 880 /1.1).

Thus, the present value of the company, taking into account future sales of the reporting period, is equal to the sum of the discounted cash flows: CU 1,800. = CU 1,000 + CU 800

Since it is the totality of a company's assets that contributes to the creation of cash flows, it is not possible to value individual assets. It follows from this statement that the value of CU 1,800 should appear in the asset balance in one amount (Table 1.3).

Financial result (profit) CU 300 indicates that investments in the capital of company "B" bring in more than average income, i.e. above 10%.

Algorithm for determining the value of actuarial goodwill:

investment = CU 2,000

Net Assets = Present Value of the Company - Accounts Payable = CU1,800 - CU 500 = CU 1,300

actuarial goodwill = CU2,000 - CU 1,300 = CU 700

Actuarial balance sheet of company "B" on date) 7 purchases

Thus, actuarial goodwill is goodwill arising from forecast expectations of future earnings that arises when a company is to be sold. In this case, everything that is shown in the asset and liability is for reference only. Of global importance is only what profit the company will receive on the invested capital and, what is especially important, what profit it will be able to give in the hands of the new owner.

Summary indicators different types goodwill and their characteristics are presented in table. 1.4.

Table 1.4

Classification of goodwill under different balance sheet theories

It is interesting to note that there is a relationship between dynamic and static goodwill. Dynamic goodwill is determined by the influence of two factors: the inflationary factor (which is expressed in the growth of the fair prices of the company's assets) and non-inflationary.

Static goodwill is determined only by the second, and therefore, it differs from dynamic goodwill by the amount of non-inflationary fluctuations.

Market-financial approach

The next classification of goodwill is determined by the nature of the company's valuation by the market. Within this classification, there are three types of goodwill:

• positive;
• negative;
• null.

If the market values ​​the company higher than the total value of its net assets, then there is positive goodwill; if the assessment is negative, then negative goodwill or badwill should be reported (for more on badwill, see paragraph 2.1). And, finally, zero goodwill is the rare case when the market valuation of the company is equivalent to the valuation of its net assets, it is not reflected in the financial statements because it has no value.

If we consider the company as a “cow”, then the owner has a choice of two alternative options:

• to receive high milk yields from a cow with proper care for it (we are talking about building up the company's internal potential, which will make it possible to receive super profits in the future);
• let the cow go for meat if the milk yield is low (the situation when it is more profitable to sell assets at an auction than to continue to receive losses from inefficient activities).

In the first case there is goodwill, in the second there is badwill.

This classification division is based on the time criterion. The calculation of the value of goodwill and its assignment to positive, negative or zero is considered at a certain point in time. This is just a photograph of the object, which captures its state at the time of shooting.

However, goodwill is a very flexible category, the value of which is subject to significant fluctuations over time. Goodwill can turn into badwill due to a number of negative reasons, such as the loss of qualified personnel, the loss of a favorable location, etc. conversely, badwill can turn into goodwill due to the merit of skilled managers and the like.