Ch04_altruism_spr08_pam200 - PAM 200 Intermediate...

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PAM 200 Intermediate Microeconomics A. Sinan Ünür Consumer Choice Consumer Choice Altruism Example Altruism Example Chapter 4
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Chapter 4 PAM 200 – A. Sinan Ünür 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.
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Chapter 4 PAM 200 – A. Sinan Ünür 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
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This note was uploaded on 04/03/2008 for the course PAM 2000 taught by Professor Evans,t. during the Spring '07 term at Cornell University (Engineering School).

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Ch04_altruism_spr08_pam200 - PAM 200 Intermediate...

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