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. * Bramoullé: Aix-Marseille University, CNRS, Aix-Marseille School of Economics; Kranton: Duke. For financial support, Yann Bramoullé thanks the French National Research Agency through Grant ANR-17-EURE-0020 and the Excellence Initiative of Aix-Marseille University, A∗MIDEX