Economics and Ethics

Altruism promote others' welfare
Descriptive
refers to the motive to increase the well-being of another (or others)
 

In economics, altruism is mixed with self-interest

Pure altruism: standard version of altruism in economics

two versions:
1. person i's utility is a function of allocations alone
     Ui(xi, xj)   i=1,2 j= 3-i

2. Person i cares about i's own allocation but about the utility , rather than the allocation of
     Ui(xi, Uj(xj))

imply different preferences:
Ui (xi, xj)means i cares about j consumption of goods (-> perternalism)

Ui ( xi, Uj(xj)) means i cares about the utility that j derives from his consumption of googds.

Philantrophy: private charity giving, treated as a public good
contrasted with private goods ( food, clothing)
two properties of private goods:
- rival: My consumtion can not be consumed by others, fishing in the sea
- excludable

ex: Lighthouse, defence

two properties of public goods:
- nonrival: once provided, no costs in consuming or deriving utility
- nonexcludable: impossible to exclude anyone

- freerider problem
- underprovision of public goods
-crowding out: when government contributions to a public good reduce private contributions
-Evidence that government service for the poor cuased an equal decline in private charity giving

Only private contributions
(1)    max Ui(xi, Gi+G-i)  , Subject to xi + Gi = Ii
Gi: person i's contribution (Beitrag) to the public good
G-i: Sum Gi excluding i's contribution
Ii: person i's income
optimal consumption: xi* and Gi*
 

Tax, t, on person i, funds the public good
the budget constraint is now:
      xi + Gi + t = Ii
Utility is maximized with xi', Gi' at:
(2)     Ui (xi', Gi'+G-i+t)

Complete: public fundig of the public good reduces private contributions one for one

Incomplete: pricate contributions to the public good decreases by less than the increas in public funding

Motives of the people in giving
Strategy: a situation in which the outcome depends not only on one's own actions but also the action of others

public goods experiments involve strategic interaction and obsecure crowding out

Dictator-game is non-strategic

The simple decision also reduces concerns abiut error or misunderstanding

mi  total money recieved by person i
i=1 (dictator), i=2 (recipient)

general utility function of dictator with pure altriusm  Ui= u(m1, m2)

special case: U= v(m1)+f(m2) [additivly separable utility function
v: material utility, f: altriusm term
xi: the amount of the dictator's endowment allocated to i
I: total endowment, where I=x1 + x2

more is better: monotonicity
v' (m1) >0,  v is pos. monotonic
f' (m2) >0

Abnehmende Grenzerträge
v'' (m1) <0
f'' (m2) <0

m1=x1, m2=x2
U= v( x1) + f( x2)
solve for max. utility
Budget: I= x1+x2 -> x1= I-x2
=> U= v( I-x2) + f(x2)

Dictators differ how relativ altruistic they are

for non givers, material utility exceeds marginal utiltiy from altruism at every positive level of giving (caring more about my dollar giving, than the reciepient)

Dictators differ how relativ altruistic they are

for non givers, material utility exceeds marginal utiltiy from altruism at every positive level of giving (caring more about my dollar giving, than the reciepient)

is the reduction in private giving in response to a tax -> fraction, c

c= delta x2 /t    -> total crowding out= -1
where delta x₂ = x_2^t - x_2^*        -> no crowding out =0

crowding out might be complete (c=-1), zero (c=0) or partial (-1<c<0)

for pure altruism x_2^t =x_2^*-t and therefore, crowding out under pure altruism, c^p is complete

c^p= x_2^*-t -x_2^* / t = -t / t = -1