Working Paper: CEPR ID: DP17000
Authors: Yann Bramoullé; Rachel E. Kranton
Abstract: What patterns of economic relations arise when people are altruistic rather thanstrategically self-interested? This paper introduces an altruism network into a simple modelof choice among partners for economic activity. With concave utility, agents effectivelybecome inequality averse towards friends and family. Rich agents preferentially chooseto work with poor friends despite productivity losses. Hence, network inequality—thedivergence in incomes within sets of friends and family—is key to how altruism shapeseconomic relations and output. Skill homophily also plays a role; preferential contractsand productivity losses decline when rich agents have poor friends with requisite skills.
Keywords: Altruism; Networks; Income Inequality; Economic Relations
JEL Codes: D63; D85; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income inequality (D31) | likelihood of preferential contracts (L14) |
| rich agents (D33) | support poorer friends (I32) |
| shocks to income distribution (D39) | increased preferential contracting (L33) |
| network inequality (D85) | altruistic agents exhibit inequality aversion (D64) |
| income of investor rises (E25) | probability of preferential contracting increases (D86) |
| income of preferred friend decreases (E25) | probability of preferential contracting increases (D86) |