On Love and Altruism

Abstract

Welfare interdependencies between individuals are sometimes expressed as consumption externalities and sometimes as utility externalities. Besides the question of whether it is possible to decide between these approaches on the basis of observations, the connection of the approaches is rather interesting. The derivation of consumption externalities from utility externalities is nontrivial and allows far-reaching interpretations. Widespread love within a group has strong positive effects; widespread hate has surprisingly little consequences. Common “friends” as well as common “enemies” can cause altruistic (efficient) behavior within a group. There are also implications for reciprocal behavior.