Week 8
Decision making
The unitary model
VCQ.qa.qbl.liuaca.qa.qblubca.qa.abD
I
utility
weighting
strictly
function
incinuaanaub
mauCQ.qls.t.PK lP.p.YlqlP.p.Yl
asYs.Q
incomepooling
Non cooperative model
• Each individual makes their decision taking the other’s decision as given , ie, reaction functions
• Outcomes are not necessarily e cient
• Income pooling can arise as a solution with voluntary contributions to public goods
The collective model
PARETOEFFICIENCY COLLECTIVE MODEL
Q.qa.ci1Qq9qb
Iffortwo feasible allocations aeformerisParetoectieientif
qq.qai.aby.uaca.qa.eu implies u'd ci q 01999947
Therange utilitiesisthe H
F rontier
Pareto
worseat ofresulting
anapenditure
slopen thatt heparetosetisconvex
assumes
orsolve yn Lupeisconcave
maxubla.qa.abs.t.PQplgaabet.uaQ.aa.absva own
higher
maryvaleqa b UQ.qa.at
Partoweightopa Lagrangian s.t.p'Qepicqatqble ub
multipliera ssociatedw uaca.qa.abp.ua rlP.p.xU Y
are
determined
by
variablestuataisoectectthesetofecticientoutcomespreferences.pe
my
Solution tlLQ.a1P.p.x.zl
thinutilityfunction
Decision making
The unitary model
VCQ.qa.qbl.liuaca.qa.qblubca.qa.abD
I
utility
weighting
strictly
function
incinuaanaub
mauCQ.qls.t.PK lP.p.YlqlP.p.Yl
asYs.Q
incomepooling
Non cooperative model
• Each individual makes their decision taking the other’s decision as given , ie, reaction functions
• Outcomes are not necessarily e cient
• Income pooling can arise as a solution with voluntary contributions to public goods
The collective model
PARETOEFFICIENCY COLLECTIVE MODEL
Q.qa.ci1Qq9qb
Iffortwo feasible allocations aeformerisParetoectieientif
qq.qai.aby.uaca.qa.eu implies u'd ci q 01999947
Therange utilitiesisthe H
F rontier
Pareto
worseat ofresulting
anapenditure
slopen thatt heparetosetisconvex
assumes
orsolve yn Lupeisconcave
maxubla.qa.abs.t.PQplgaabet.uaQ.aa.absva own
higher
maryvaleqa b UQ.qa.at
Partoweightopa Lagrangian s.t.p'Qepicqatqble ub
multipliera ssociatedw uaca.qa.abp.ua rlP.p.xU Y
are
determined
by
variablestuataisoectectthesetofecticientoutcomespreferences.pe
my
Solution tlLQ.a1P.p.x.zl
thinutilityfunction
