Models of Caring, or Acting as If One Cared, About the Welfare of Others

Posted: 8 Aug 2014

See all articles by Julio J. Rotemberg

Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased); National Bureau of Economic Research (NBER) (deceased)

Date Written: August 2014

Abstract

This article surveys the theoretical literature in which people are modeled as taking other people’s payoffs into account either because this affects their utility directly or because they wish to impress others with their social-mindedness. Key experimental results that bear on the relevance of these theories are discussed as well. Five types of models are considered. In the first, an individual’s utility function is increasing in the payoffs of other people. The more standard version of these preferences supposes that only consumption leads to payoffs and has trouble explaining prosocial actions such as voting and charitable contributions by poor individuals. If one lets other variables determine happiness as well, this model can explain a much wider set of observations. The second type of model surveyed involves people trying to demonstrate to others that they have prosocial (or altruistic) preferences. In these models, altruistic acts need not have a direct effect on utility. The third class of models includes those of reciprocity in which people’s altruism depends on whether others act kindly or unkindly toward them. In the fourth type of model, inequality has a profound effect on altruism, with individuals being spiteful toward people whose resources exceed their own. Finally, I discuss the fifth type of model, in which specifications of altruism might have to be modified to take into account how people behave when they are able to transfer lotteries to others.

Suggested Citation

Rotemberg, Julio J., Models of Caring, or Acting as If One Cared, About the Welfare of Others (August 2014). Annual Review of Economics, Vol. 6, pp. 129-154, 2014. Available at SSRN: https://ssrn.com/abstract=2477749 or http://dx.doi.org/10.1146/annurev-economics-072413-113000

Julio J. Rotemberg (Contact Author)

Harvard University, Business, Government and the International Economy Unit (deceased) ( email )

Cambridge, MA
United States
617-495-1015 (Phone)
617-496-5994 (Fax)

National Bureau of Economic Research (NBER) (deceased)

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Cambridge, MA 02138
United States

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