Social Preferences and the Efficiency of Bilateral Exchange
Daniel J. Benjamin
Cornell University - Department of Economics; National Bureau of Economic Research (NBER)
June 15, 2010
Under what conditions do social preferences, such as altruism or a concern for fair outcomes, generate efficient trade? I analyze theoretically a simple bilateral exchange game: Each player sequentially takes an action that reduces his own material payoff but increases the other player’s. Each player’s preferences may depend on both his/her own material payoff and the other player’s. I identify necessary conditions and sufficient conditions on the players’ preferences for the outcome of their interaction to be Pareto efficient. The results have implications for interpreting the rotten kid theorem, gift exchange in the laboratory, and gift exchange in the field.
Number of Pages in PDF File: 53
Keywords: social preferences, fairness, altruism, gift exchange, rotten kid theorem
JEL Classification: D63, J33, J41, M52, D64working papers series
Date posted: March 6, 2009 ; Last revised: June 27, 2010
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