Front Page Titles (by Subject) Cost in a Theory of Choice - Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works
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Cost in a Theory of Choice - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works 
The Collected Works of James M. Buchanan, Foreword by Geoffrey Brennan, Hartmut Kliemt, and Robert D. Tollison, 20 vols. (Indianapolis: Liberty Fund, 1999-2002). Vol. 6 Cost and Choice: An Inquiry in Economic Theory.
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Cost in a Theory of Choice
The distinction between the concept of cost in the predictive context, as sketched out above, and the concept of cost in a more general theory of choice, as articulated—though not fully—in Chapter 2, can best be emphasized at this point by elaborating this second concept. The essential element in this concept is the direct relationship between cost and the act of choice, a relationship that does not exist in the neoclassical predictive theory. In the London-Austrian conception, by contrast, cost becomes the negative side of any decision, the obstacle that must be got over before one alternative is selected. Cost is that which the decision-taker sacrifices or gives up when he makes a choice. It consists in his own evaluation of the enjoyment or utility that he anticipates having to forego as a result of selection among alternative courses of action.
The following specific implications emerge from this choice-bound conception of cost:
In a theory of choice, cost must be reckoned in a utility dimension. In the orthodox predictive theory, however, cost is reckoned in a commodity dimension. This distinction can be applied to each of the six attributes listed above. In a theory of choice, cost represents the anticipated utility loss upon sacrifice of a rejected alternative. Because utility functions are necessarily personal, cost is tied directly to the chooser and cannot exist independently of him. In the predictive theory of economic behavior, the cost of producing one “good” is the amount of another that could be produced instead. Cost, as such, exists independently of the choice process, and there is no direct linkage between choosing and bearing cost.
Cost, then, is purely subjective in any theory of choice, whereas cost is objective in any theory that involves genuine prediction. If cost is to influence choice, it must be based on anticipations; it cannot be based on realized experience—at least directly. On the other hand, once cost is divorced from choice, it is a physical concept; it becomes irrelevant whether cost is measured before, at the moment of, or after actual commitment. In the Smithian model, the cost of a beaver is two deer, and this holds so long as the postulated physical relationships hold; there is no point in distinguishing ex ante and ex post measurements. Because of the technological or physical nature of cost, derived from the transformation function in commodity space, the alternatives facing the actor can be “costed” by an external observer. There is no need for the observer to psychoanalyze the hunter in Smith’s model. And the problem of dating does not arise in the objective definition implicit in the predictive theory. On the other hand, cost must be precisely dated in any theory of genuine choice because it is tied to the moment of choice as such. Before choice, cost exists as a subjective experience. After choice, cost vanishes in this sense. What happens to the chooser after he has chosen remains to be considered.