Altruism networks and economic relations

Yann Bramoullé and Rachel E. Kranton

Journal of Economic Behavior & Organization, 2024, vol. 226, issue C

Abstract: What patterns of economic relations arise when people are altruistic rather than strategically self-interested? What are the welfare implications of altruistically-motivated choices of business partners? This paper introduces an altruism network into a simple model of choice among partners for economic activity. With concave utility, agents effectively become inequality averse towards their friends and family. Rich agents preferentially choose to work with poor friends despite productivity losses. These preferential contracts can also align with welfare since the poor benefit the most from income gains and these gains can outweigh the loss in output. Hence, network inequality—the divergence in incomes within sets of friends and family—is key to how altruism shapes economic activity, output, and welfare. When skill homophily —the tendency for friends to have the skills needed for high production—is high, preferential contracts and productivity losses disappear since rich agents have poor friends with the requisite qualifications.

Keywords: Networks; Altruism; Income inequality; Production; Connections (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:226:y:2024:i:c:s0167268124002932

DOI: 10.1016/j.jebo.2024.106687

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