Other-Regarding Preferences in General Equilibrium

50 Pages Posted: 12 Jun 2008

See all articles by Martin Dufwenberg

Martin Dufwenberg

University of Arizona - Department of Economics

Paul Heidhues

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)

Joel Sobel

University of California at San Diego

Date Written: May 2008

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.

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

JEL Classification: D5, D63, D64

Suggested Citation

Dufwenberg, Martin and Heidhues, Paul and Kirchsteiger, Georg and Sobel, Joel, Other-Regarding Preferences in General Equilibrium (May 2008). CEPR Discussion Paper No. DP6815, Available at SSRN: https://ssrn.com/abstract=1143178

Martin Dufwenberg (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

Paul Heidhues

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt 50
CP 114
Brussels, B-1050
Belgium

HOME PAGE: http://www.ecares.org/people/members/kirchsteiger/kirchsteiger/home.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Joel Sobel

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
619-534-4367 (Phone)
619-534-7040 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
534
PlumX Metrics