Year: 2007
Type: other
Abstract: We investigate how the assumption that individuals are characterized by some recent forms of behavioral preferences changes the analysis of an otherwise classical welfare problem, namely the optimal allocation of a scarce resource among a finite number of claimants. We consider two preference specifications: inequity aversion and reference dependence. In the latter case we also study the implications of the claimants displaying a self-serving bias when setting their reference point. Using standard welfare criteria, we compute the optimal allocations that a benevolent social planner should implement in the various scenarios. Results are often remarkably different with respect to traditional (i.e., rational preferences) analysis. We discuss the policy implications and the role of a social planner.
Author: Andrea Gallice
Institutions: Collegio Carlo Alberto, University of Turin
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1498709999