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Unformatted text preview: h wooden benches; it would be
a small sacri…ce for popularity. What the company is
trying to do is to prevent the passenger who can pay
the second-class fare from travelling third class; it hits
the poor, not because it wants to hurt them, but to frighten
the rich. J. Lagerlöf (U of Copenhagen) Microeconomics (MikØk) 3: L2-II Spring ‘
11 23 / 29 Fully Non-Linear Tari¤: Dupuit’ Conjecture (3/3)
And then Dupuit explains the reason for quality distortions
between …rst- and second-class:
[...] it is again for the same reason that the
companies, having proved almost cruel to third-class
passengers and mean to second-class ones, become lavish
in dealing with …rst-class passengers. Having refused
the poor what is necessary, they give the rich what is
However, in our theoretical model there is e¢ ciency — and thus
no upward distortion — at the top.
I To reverse this result one could assume that the high type gets
a higher marginal utility (as here) but a lower total utility.
[Maybe we can look at that in a problem set.] J. Lagerlöf (U of Copenhagen) Microeconomics (MikØk) 3: L2-II Spring ‘
11 24 / 29 Fully Non-Linear Tari¤: Serving both types? (1/3)
Recall that we assumed that the parameters were such that the
…rm optimally chose contracts such that both types wanted to
I Intuitively, this should be the case when there are relatively
many low-type consumers in the population (ν large). For small ν, it’ optimal to ignore the low types:
FB and choose t so that the high types just barely
I Set q = q
want to consume. [Why?] Problem Set 2 illustrates this. There it’ assumed that c = 0 and
for q 2 [0, θ ] .
u (q ) = q
So the overall utility θ u (q ) equals
θ u (q...
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- Spring '11