Discussion paper
DP17000 Altruism Networks, Income Inequality, and Economic Relations
What patterns of economic relations arise when people are altruistic rather than
strategically self-interested? This paper introduces an altruism network into a simple model
of choice among partners for economic activity. With concave utility, agents effectively
become inequality averse towards friends and family. Rich agents preferentially choose
to work with poor friends despite productivity losses. Hence, network inequality—the
divergence in incomes within sets of friends and family—is key to how altruism shapes
economic relations and output. Skill homophily also plays a role; preferential contracts
and productivity losses decline when rich agents have poor friends with requisite skills.
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