Classical Market Outcomes with Non-Classical Preferences

27 Pages Posted: 1 Jun 2007

See all articles by Georg Kirchsteiger

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)

Martin Dufwenberg

University of Arizona - Department of Economics

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

Kirchsteiger, Georg and Dufwenberg, Martin, Classical Market Outcomes with Non-Classical Preferences (March 2007). Available at SSRN: https://ssrn.com/abstract=988653 or http://dx.doi.org/10.2139/ssrn.988653

Georg Kirchsteiger (Contact Author)

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

Martin Dufwenberg

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

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