The Welfare Economics of Adaptive Preferences
AbstractIn this paper I demonstrate that a reasonable welfare theoretic concept of "progress" can be made consistent with the assumption of endogenously changing preferences as long as these preference changes correspond to the pattern of "adaptive preferences". The main theorem of the paper shows that under certain additional conditions "adaptive preferences" imply the existence of a complete pre-ordering of the consumption space in terms of "improvement paths" which allow endogenous preference changes. It is then shown that welfare economics of "improvement paths" is also possible with interpersonal influences on preferences. A conjecture is developed that results of recent empirical and experimental research into human economic behaviour corroborate the hypothesis of "adaptive preferences".
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Bibliographic InfoPaper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2005_11.
Length: 27 pages
Date of creation: Jun 2005
Date of revision:
Welfare Economics; Endogenous Preferences; Adaptive Preferences; Interpersonal Influences on Preferences; Improvement Paths; Bounded Rationality;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-07-18 (All new papers)
- NEP-CBE-2005-07-18 (Cognitive & Behavioural Economics)
- NEP-EXP-2005-07-18 (Experimental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics.
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