Question

Topic: Productivity cost and contingent market valuation.

Suppose the faith-based organization has three leaders: - a 52 year old, African American male physician in private practice who also holds a PhD; - a 29 year old Native American female lawyer also holds and MBA and who works for a large firm that specializes in medical malpractice claims; and - a 38 year old, Caucasian male with an MA in art history who works as cook at a local restaurant.

Suppose that each of them uses their free time to be a group leader at the faith- based organization. Each person spends three hours a week as a group leader.

Question: How might a researcher following a more traditional human capital approach put a value on each person’s time?

Answer 1

Value is subjective in the market according to behavioral economics. Each person values things differently according to their utility and there is also involves opportunity cost in it. Human capital is also a kind of asset whose value is a function of experience, knowledge, innate talent and formal education. It is quite hard to quantify these qualitative things but generally, a broad framework is adopted and a person's ability to generate future income is also taken into consideration.
There are many valuation models but the present value of future earnings model developed by Lev & Schwartz has gained much more popularity.

In the first case, the person is of 52 years age and holding a Ph.D. so he has experience as well as one of the highest qualification and his opportunity cost must be high but he is nearing to retiring age although he has a private practice.
Considering the situation his number should be 2nd in the hierarchy.

The second person is younger with 29 years of age but holds an MBA degree which is again regarded as highly qualified and she is the youngest in all which means her present value of future income will be higher and so that her valuation will be highest.

The 3rd person is also qualified but according to the market that qualification and job are not highly specialized and so that his time is valued at the lowest level.