13 Social Preferences Flashcards
How can we model altruism? + diagram
The more selfless, the flatter (“more laid back”) the indifference curve it. The more selfish, the more vertical it is.
At (I, T), there is altruism. It is also Pareto efficient despite not being “fair”
Define inequality aversion
Disliking outcomes in which some individuals receive more than others.
Define reciprocity
Being kind/helpful to others who are kind/helpful, and vice versa.
What utility function can we give to an altruist?
A problem with Pareto efficiency: cake example
It is Pareto efficient to divide an entire cake between a group of people. It is also Pareto efficient to give the entire cake to one person.
Pareto efficiency vs equity
The Pareto criterion does not help in choosing between allocation.
If we care about “fairness” then we think that some allocations are “better” than others.
Why might some allocations be considered unfair?
What is the Gini coefficient? + equation
What are determinants of outside options? (4)
‘outside’ refering from a division of the gains from trade
- Social norms : landowner does not want the farmer to starve
- Laws:
- Guaranteed minimum rights;
- Preventing allocations imposed by force
- Contract law
- Private property: if the grain belongs to the farmer, they can sell it at market.
- Start giving cash to farmer: redistributive taxation.
Why do we adopt redistributive taxation?
Individual altruism may inspire us to freely give money to the poor but we might prefer to see everyone pay their fair share.
So, we may all (or many of us) prefer to have this centrally organised: role for institution of government and redistributive taxation.
Redistributive taxation diagram
Effects of redistributive taxation (3)
- A more equal distribution of disposable income.
- Differences in inequality in disposable income across countries depends on policy effectiveness.
- Although, labour and commodity taxation creates deadweight loss.
- This may be a reasonable price for a fairer society, but we can still design taxes that would minimise this deadweight loss, such as taxing inelastically demanded goods.
