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Quasi-Homethetic Preferences in a Two-Person Exchange Economy

Craig Marcott
Organization: University of St. Thomas

Wolfram Technology Conference 2013
Conference location

Champaign, Illinois, USA

This paper introduces a utility function that is a convex combination of constant elasticity of substitution (CES) and quasi-linear preferences. The quasi-linear preferences are chosen from among four types (i.e., two versions each of vertically- and horizontally-parallel utility functions). Dynamic manipulation of the 15 parameters of this hybrid utility function reveals some unusual price-offer and demand curves. The preferences and initial endowments of the two goods are rotated to construct an Edgeworth exchange box. Sliders, locators and ButtonBars allow the user to interact with the model; specifically, the set of Pareto optimal allocations, the competitive equilibrium and the price-offer curves can be toggled on and off. There is an option of mapping points into a bargaining space in which the axes are the utilities of the two consumers. This construct allows the user to visually compare the competitive equilibrium with standard bargaining solutions (e.g., Nash bargaining, Kalai-Smorodinski).

ConferencePresentation_marcott2c.nb (33.3 MB) - Mathematica Notebook

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