The real world only rarely resembles the world of the economist, that place “where a $10 bill is never found on the sidewalk, because someone has already stopped to pick it up.” Sometimes firms produce certain goods and services not because customers want them but because they enjoy producing them. Typically, these firms are privately held, since their owners are then free to pay for their production preferences by realising a lower than “optimal” rate of return.
Fiona Scott Morton (an economist at Yale) and Joel Podolny (a sociologist now at Harvard) wrote an interesting paper on the motivation of owners in the California Wine Industry. Click here to view the paper, which is long but readable even if you skip the maths. Or if you are really in a hurry, here is an excerpt from the abstract:
In other words: some winemakers, the profit-oriented owners, are in it for the money. Others, the utility-maximizers, are in the wine business “for love”; they enjoy making good wine, and don’t care that this leads to lower financial returns. Winemaking is therefore a difficult industry if you are in it purely for the money, since your competitors may be in it for love and thereby either underprice you or release more wine into the market than profit seeking logic would dictate.
We model and measure motivations of California winery owners, and analyze their effects on quality and price. We find utility-maximizers are more likely to produce high quality and set higher quality-adjusted prices. Profit-oriented owners are less likely to produce high quality wines. These results that the presence of hobbyists who enjoy producing high quality may lower financial returns in the segment and discourage profit maximizers from locating there.
Scott Morton and Podolny suggest that similar results would be obtained if one studied opinion magazines, films, bars or horse racing. What about restaurants?
I find the authors’ analysis and conclusions persuasive. They give further confirmation to the view (see this thread for discussion) that restaurants are “a bad business” and generally an inappropriate vehicle for a passive investor, i.e. one who derives no personal pleasure from owning a restaurant and is simply looking to make money.
And what about food writing? It’s true that some talented people manage earn a living doing this, but are they not competing with those of us who do it for love, e.g. spending large amounts of time posting on eGullet (sometimes at great length) for rewards other than money?