Public Economics: Assignment 1 (due Tuesday September 18 before class time) Prob

Question

Public Economics: Assignment 1 (due Tuesday September 18 before class time) Problem 1 Consider the following table. Each cell represents a possible allocation. Thus, there are nine possible allocations. The first number in each cell rep- resents the utility for agent 1, the second number represents the utility for agent 2 5,5 0,1 3,2 4,4 1,0 -2,10 3,8 6,1 2,0 (i) Is 5,5 Pareto optimal? Is 4, 4 Pareto optimal? (ii) Find all the Pareto optimal allocations (iii) Find the best allocation according to the utilitarian criterion (iv) Find the best allocation according to Rawls' maxmin criterion. (v) Consider now the following new optimality criterion that we will call the Anti-Rawls maximax criterion. This criterion demands that we choose the allocation that maximizes the welfare of the most well-off person in so- ciety. What allocation would be chosen according to this criterion? Problem 2 Now consider the following table. represents the utility for agent 1, the second number represents the utility for agent 2. As before, the first number in each cell 0,0 15, -12 10,-10 10,0 2,-330,-25 20, -20 30,1 (i) Find all the Pareto optimal allocations (ii) Find the best allocation according to the utilitarian criterion. (ii) Find the best allocation according to Rawls' maxmin criterion.

Explanation / Answer

Question 1

i) Yes, because at (5,5) one person can be made better off by making other worseoff. This is what suggested by pareto optimal allocation definition. No, (4,4) is not a pareto optimal allocation because both individuals can be made better off without making anyone worseoff at (5,5).

ii) Pareto optimal allocation is (5,5).

iii) According to utilitarian approach the allocation which maximizes the sum of utilities is is best. Therefore, (3, 8) is best

iv) According to Rawls (5,5) is best because Rawls welfare is min[ U1,U2}

* We are supposed to do only four sub-parts to a question. For solution to other parts please post as a different question.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.