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CONSUMPTION EXTERNALITIES, PREFERENCE CHANGES AND THE ‘SAMARITAN'S DILEMMA’
Author(s) -
KAUFMAN Dennis A.
Publication year - 1995
Publication title -
annals of public and cooperative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.526
H-Index - 37
eISSN - 1467-8292
pISSN - 1370-4788
DOI - 10.1111/j.1467-8292.1995.tb00880.x
Subject(s) - externality , consumption (sociology) , beneficiary , economics , microeconomics , dilemma , welfare , negotiation , preference , public economics , market economy , epistemology , sociology , political science , law , social science , philosophy , finance
* This paper examines the desirability of an exogenously induced change in the preferences of individuals in an economy characterized by (i) asymmetrical, localized positive consumption externalities, (ii) private, non‐market, negotiation‐free transfers, and (iii) the ‘Samaritan's dilemma.’ A model is analysed in which a benefactor (individual 1) makes an unrestricted voluntary transfer to a beneficiary (individual 2) who ran use the transfer to increase 2's consumption of either a purely private good x or a good y that generates external benefits for 1. Once 1 makes a transfer to 2, 1 cannot control how 2 spends it. If 2 fails to take into account this externality, then good y is under consumed and a loss in social welfare results. When such externalities and their concomitant welfare losses arise, conventional solutions are frequently inappropriate, impractical or impossible. This power shows that exogenously inducing the adoption of new externality internalizing preferences by the benefactor and the beneficiary not only increases the benefactor's transfer and the beneficiary's consumption of good y but also produces a ‘socially superior’ state. The welfare improvement is measured in terms of a welfare criterion that is based on the initial and new preferences of each individual