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Economics and Ethics

Kapitel 4

Kapitel 4

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S. M.
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S. M.
This flashcard set explores the intersection of economics and ethics at a university level, focusing on concepts like altruism, warm glow, and utility maximization. It delves into the dynamics of crowding out, tax implications, and donor behavior, particularly how voluntary contributions are affected by tax policies. The set is valuable for students and researchers in macro-economics who want to understand the ethical dimensions of economic decisions and the impact of policy on charitable giving.
Flashcards
7
Students
2
Language
English
Category
Macro-Economics
Level
University
Created / Updated
17.05.2014 / 13.03.2015
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Flashcards

Warm glow

giving undertaken to provide the donor with a good feeling

warm glow is a function only of the amount given g(x2)

warm glow is often considered selfish

implications fpr crowding out

Utility maximiation with warm glow in the standard treatment

First order condition
dU/dx2 =-v'(I-x2) + g'(x2)

rearranging and solving for the optimal value of x2

v' (I-x2)=g' (x2)  --> m*2=x2*

where U' = 0

Utility maximization with warm glow in the tax treatment

Substituting into the dictator's utility function

U= v( I-x2-t) + g(x2)

Applying the first order condition
dU/dx2 = -v' (I-x2-t)+g'(x2) = 0

rearranging: v'(I-x2-t) = g'(x2)  --> x2t

at the optimum, marginal material utility equals marginal warm glow

Crowding out with warm glow

prove crowding out by contribution (trying to find no crowding out)
standard: v'(I-x2) = g'(x*2)
tax:            v'(I-x2-t) = g'(xt2)

if there is NO crowding out, x2* must be equal x2t,which is impossible, so there is crowiding out
 

Pure altriusn and crowding out

if crowding out is complete (one for one €)
x2t = x2*-t

but substitution can't be made, so: crowding out is incomplete under warm glow

facts of pure altriusm and warm glow
 

pure altriusm: Donors care about total benefit to recipeints
they respond to to tax transfer by reducing their donations by an equal amount
Crowding out is complete: cp= -1

warm glow: Donors care only about the contribution they make voluntary
taxes reduces their net income, so they reduce giving
since they derive no utility from taxtransfer, thex reduce givung by less than the tax.
Crowding our is incomplete -1< cw<0

Impure alriusm

pure altruism + warm glow
U=u(m1, m2, x2)

Additively seperable utility function
U= v(m1) +f(m2) +g(x2)

Crowding out is intermediate
-1=cp<ci<cw<0
 

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