{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Section-5-Quasilinear-Utility-and-Pareto-Efficiency-slides

Section-5-Quasilinear-Utility-and-Pareto-Efficiency-slides...

Info icon This preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Quasilinear Utility and Pareto Efficiency Todd Sarver Northwestern University Econ 310-2 – Fall 2011 Todd Sarver (Northwestern University) Quasilinear Utility and Pareto Efficiency Econ 310-2 – Fall 2011 1 / 8
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Quasilinear Utility Consider adding monetary transfers to the model: Todd Sarver (Northwestern University) Quasilinear Utility and Pareto Efficiency Econ 310-2 – Fall 2011 2 / 8
Image of page 2
Quasilinear Utility Consider adding monetary transfers to the model: Let t i be the transfer to individual i . If t i > 0 , then money is being transfered to individual i . If t i < 0 , then money is being transfered away from individual i . Todd Sarver (Northwestern University) Quasilinear Utility and Pareto Efficiency Econ 310-2 – Fall 2011 2 / 8
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Quasilinear Utility Consider adding monetary transfers to the model: Let t i be the transfer to individual i . If t i > 0 , then money is being transfered to individual i . If t i < 0 , then money is being transfered away from individual i . Feasibility constraint: We require that n i =1 t i = 0 . That is, money transfered to one individual must be funded by transferring money away from some other individuals. Todd Sarver (Northwestern University) Quasilinear Utility and Pareto Efficiency Econ 310-2 – Fall 2011 2 / 8
Image of page 4
Quasilinear Utility Consider adding monetary transfers to the model: Let t i be the transfer to individual i . If t i > 0 , then money is being transfered to individual i . If t i < 0 , then money is being transfered away from individual i . Feasibility constraint: We require that n i =1 t i = 0 . That is, money transfered to one individual must be funded by transferring money away from some other individuals. Definition A utility function u i is quasilinear in monetary transfers if it takes the form u i ( t i , A ) = t i + v i ( A ) , where v i is some function that assigns a value to each alternative A . Todd Sarver (Northwestern University) Quasilinear Utility and Pareto Efficiency Econ 310-2 – Fall 2011 2 / 8
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Quasilinear Utility: Bigger Pie Pareto Improvement Theorem Consider any set of transfers t 1 , t 2 , . . . , t n and any alternative A . Suppose there exists another alternative B such that n i =1 v i ( B ) > n i =1 v i ( A ) . Then, there exist a new set of transfers ˆ t 1 , ˆ t 2 , . . . , ˆ t n such that the allocation ( ˆ t 1 , . . . , ˆ t n , B ) is a Pareto improvement of ( t 1 , . . . , t n , A ) . Todd Sarver (Northwestern University) Quasilinear Utility and Pareto Efficiency Econ 310-2 – Fall 2011 3 / 8
Image of page 6
Quasilinear Utility: Bigger Pie Pareto Improvement Theorem Consider any set of transfers t 1 , t 2 , . . . , t n and any alternative A . Suppose there exists another alternative B such that n i =1 v i ( B ) > n i =1 v i ( A ) . Then, there exist a new set of transfers ˆ t 1 , ˆ t 2 , . . . , ˆ t n such that the allocation ( ˆ t 1 , . . . , ˆ t n , B ) is a Pareto improvement of ( t 1 , . . . , t n , A ) . Intuition Think of n i =1 v i ( A ) as the size of the utility “pie”, which is to be divided between the individuals. Since utility is quasilinear, we can use monetary transfers to divide this pie any way we see fit.
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern