capital labour and justice - fairness

Question 1

what is economics definition of rationality?

Answer 1

1) maximising ones own self interest
2) consistency in terms of the axioms by which utility is defined or of the choices made by individuals

Question 2

what are the three types of utility function?

Answer 2

pure alturism
pure egotism
impure altruism

Question 3

what is pure alturism?

Answer 3

onlu care about the overall amount spent on the public good

Question 4

what is pure egotism?

Answer 4

only care about the amount you personally give

Question 5

what is impure altruism?

Answer 5

care about both

Question 6

what does pure alturism imply?

Answer 6

giving is independent of income and in large economies no would give to public goods

Question 7

what is Fehr-Schmitd model of inequality aversion?

Answer 7

U(xi,….,xn)=xi - [ai/n-1] ∑(xj-xi)- [bi/n-1]∑(xi-xj) where n is the number of people in the economy
a is an envy weight - how much you care if people have more
b is a guilt weight - how much you care if people have less
we divide by n- 1 because we want an average effect of total income differences

Question 8

what is the simple model for redistribution?

Answer 8

maximise utility subject to c_i=y_i =a_i*(1-t) +a^A t + wt^2 where a_i is an individuals productivity which is heterogenous
tt is a flat tax on income
a^A id the average mean productivity
w is waste from taxation

Question 9

what is the median voter theorem?

Answer 9

the government chooses the tax rate that maximises consumption for the voter with median productivity or income a^M

Question 10

what is the formula for the tax rate?

Answer 10

t= (a^A -a^M)/2W where w is waste from taxation, a^A is the average productivity, a^M is the median productivity

Question 11

what can inequality be thought as and what does this mean for the tax rate?

Answer 11

the inequality can be thought of as the distance between average and median productivity. the tax rate is higher the larger the difference in productivities, hence redistribution is higher as a result of greater inequality

Question 12

what is equation for a utility fucntion that is indirectly affected by inequality?

Answer 12

U=u(c(Q)) , individuals do not care about inequality per se, only if inequality affects consumption by e.g. externalities in education, crime and property rights, incentive effects

Question 13

what is the equation for a utility function that is directly affected by inequality?

Answer 13

U=u(c(Q))-δ_i(Q-Q_i)^2 where Q_i represents the ideal level of inequality for an individual i and δi is a weight of how much an individual cares about deviations from Q*_i

Question 14

what is the libertarian preference for redistribution?

Answer 14

Q*=Q^L. no redistribution as inequality determined by market forces

Question 15

what is the efficiency max view for redistribution?

Answer 15

Q*=Q^E where QE>QL depending on indirect effects of inequality

Question 16

what is the communist view of redistribution?

Answer 16

Q_i^C =0, everyones income should be equal

Question 17

what is the rawlsian view of redistribution?

Answer 17

Q_i^R is the distribution obtained ex post after government equalises everyones utility behind the veil of ignorance

Question 18

what are the three things needs for the evolutionary stategy of axelrod and hamilton?

Answer 18

1) robustness : what strategy can thrive in lots of different times of enviroments especially when others may use a wide variety more/less sophisticated strategies
2) stability : under what conditions can this strategy resist being dominated by other strategies
3) intial viability: even if this strategy is robust and stable, how can it start if the enviroment is noncooperative

Question 19

what is generous tit for tat?

Answer 19

the player cooperates on the first move and then copies whatever the player did on the previous move

Question 20

what is grim tit for tat?

Answer 20

variation on tit for tat, you always cooperate until your opponent defects, then you defect forever

Question 21

what is pavlovs strategty for the repeated prisoners dilema?

Answer 21

repeat your behaviour if it was sucessful (you defected and your opponent did not, or you both cooperated)
change your behaviour if you lost (you cooperated and your opponent defected or you both defected)
fairness may be born out of an evolutionary desire to encourage cooperation