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Other-Regarding Preferences in General Equilibrium

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  • Dufwenberg, Martin
  • Heidhues, Paul
  • Kirchsteiger, Georg
  • Riedel, Frank
  • Sobel, Joel

Abstract

We study competitive market outcomes in economies where agents have other-regarding preferences. We identify a separability condition on monotone preferences that is necessary and sufficient for one's own demand to be independent of the allocations and characteristics of other agents in the economy. Given separability, it is impossible to identify other-regarding preferences from market behaviour: agents behave as if they had classical preferences that depend only on own consumption in competitive equilibrium. If preferences, in addition, depend only on the final allocation of consumption in society, the Second Welfare Theorem holds as long as an increase in resources can be distributed such that all agents are better off. Nevertheless, the First Welfare Theorem generally does not hold. Allowing agents to care about their own consumption and the distribution of consumption possibilities in the economy, we provide a condition under which agents have no incentive to make direct transfers, and show that this condition implies that competitive equilibria are efficient given prices.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6815.

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Date of creation: May 2008
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Handle: RePEc:cpr:ceprdp:6815

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Keywords: markets; other-regarding preferences; self-interest; welfare;

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References

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Citations

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Cited by:
  1. Höchtl, Wolfgang & Sausgruber, Rupert & Tyran, Jean-Robert, 2012. "Inequality aversion and voting on redistribution," European Economic Review, Elsevier, vol. 56(7), pages 1406-1421.
  2. Schmidt, Klaus M., 2010. "Social Preferences and Competition," Discussion Papers in Economics 11313, University of Munich, Department of Economics.
  3. Fehr, Ernst & Schmidt, Klaus M., 2010. "On inequity aversion: A reply to Binmore and Shaked," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 101-108, January.
  4. Brekke, Kjell Arne & Nyborg, Karine, 2010. "Selfish bakers, caring nurses? A model of work motivation," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 377-394, September.
  5. Yves Balasko, 2013. "Social demand functions in general equilibrium," Textos para discussão 609, Department of Economics PUC-Rio (Brazil).
  6. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism Design and Intentions," Working Paper Series in Economics 53, University of Cologne, Department of Economics, revised 21 Aug 2012.
  7. Luciano Andreozzi & Matteo Ploner & Ivan Soraperra, 2013. "Justice among strangers. On altruism, inequality aversion and fairness," CEEL Working Papers 1304, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  8. Abhijit Ramalingam & Michael Rauh, 2008. "Firms, Markets, and the Work Ethic," Working Papers 2008-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  9. Schmidt, Klaus M., 2009. "The Role of Experiments for the Development of Economic Theories," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 252, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Alexander W. Cappelen & Knut Nygaard & Erik Ø. Sørensen & Bertil Tungodden, 2011. "Social Preferences in the Lab: A Comparison of Students and a Representative Population," CESifo Working Paper Series 3511, CESifo Group Munich.
  11. Großer, Jens & Reuben, Ernesto, 2013. "Redistribution and market efficiency: An experimental study," Journal of Public Economics, Elsevier, vol. 101(C), pages 39-52.
  12. Joel Sobel, 2009. "Generous actors, selfish actions: markets with other-regarding preferences," International Review of Economics, Springer, vol. 56(1), pages 3-16, March.

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