Ch 4 Rational Altruism_Presentation

# Ch 4 Rational Altruism_Presentation - PAM 200 Intermediate...

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PAM 200 Intermediate Microeconomics Consumer Choice Consumer Choice Altruism Example Altruism Example Chapter 4

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Chapter 4 Rational Altruism Example An altruist derives happiness from another person’s happiness. We can model this by assuming a utility function in the following form: • U(x a , x o ) = f(x a ) + b g(x o ) • x a is some measure of the altruist’s material wealth, and x o is some measure of the beneficiary’s material wealth. f() is the altruist’s utility function over her own material wealth. g() is the beneficiary’s utility function over his own material wealth. b is the weight the altruist puts on the happiness the beneficiary derives from material wealth.
Chapter 4 Rational Altruism Example We assume b > 0. Why? We assume b < 1. Why? Suppose the altruist has income I a and the beneficiary has income I o . Suppose also that there is some mechanism by which the altruist can transfer some of her wealth to the beneficiary if she wishes. Our purpose in this example is to find out if and how much the altruist will

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## This note was uploaded on 02/19/2009 for the course PAM 2000 taught by Professor Evans,t. during the Fall '07 term at Cornell.

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Ch 4 Rational Altruism_Presentation - PAM 200 Intermediate...

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