Classical Market Outcomes with Non-Classical Preferences
27 Pages Posted: 1 Jun 2007
Date Written: March 2007
Abstract
There is widespread conjecture that distributional concerns like fairness and altruism, found to shape people's behavior in small group situations, have no impact on trading in markets with many participants. We explore the issue analytically by considering a general equilibrium framework where agents exhibit such preferences. For each economy with 'social' agents we define a comparable economy with selfish agents. We derive a sufficient condition such that any outcome which is an equilibrium with distributional concerns constitutes an equilibrium also in the counterpart selfish economy, and vice versa. We show that this condition is fulfilled for most of the standard distributional concern models whenever the economy is large enough. We also show that the same condition is sufficient for the equlibrium outcomes to be efficient even in the presence of distributional concerns.
Keywords: Social Preferences, Competitive Markets, General Equilibrium
JEL Classification: D5, D6, D64
Suggested Citation: Suggested Citation
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