Flatmates: Other-regarding preferences in an Externality

In the first part of this study we analyze equilibria and social optima in an externality game with (purely) altruistic agents. Altruistic equilibria will be less socially inefficient than selfish equilibria, yet, less efficient than the social optimum. In the second part altruism is compared to other formalizations of the “concern for others”, which are often considered to belong to the “altruism literature.” We will show that these approaches can be formally very different and even hardly compatible. To highlight some of these formal differences, we apply a formalization of inequality aversion and a formalization of reciprocity to the externality game of Part I. Where possible, we pursue this exercise up to finding the reaction functions of the game.