Evaluating a Policy to Foster Cooperation
An organization observes that two employees, Alex and Ben, often make self-interested choices on a joint project, leading to suboptimal team outcomes. To foster collaboration, the organization implements a new incentive program designed to make each employee care more about their colleague's success.
Evaluate the likely success of this program by explaining the underlying economic mechanism. In your answer, describe how the shape of the employees' indifference curves (on a graph with their own payoff on the vertical axis and their colleague's on the horizontal) would change if the program is effective, and justify why this change would lead them to choose more cooperative outcomes.
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Introduction to Microeconomics Course
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CORE Econ
Ch.4 Strategic interactions and social dilemmas - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Two individuals, Jamie and Chris, must decide how to divide a resource. Imagine a graph where Jamie's share is on the vertical axis and Chris's share is on the horizontal axis. A straight, downward-sloping 'Allocation Line' shows all possible divisions.
- Jamie's indifference curves are solid and relatively flat, meaning Jamie is willing to give up a small amount of their own share to see Chris's share increase by one unit.
- Chris's indifference curves are dashed and relatively steep, meaning Chris must be given a large increase in their own share to be willing to give up even one unit of their share.
Based on this information, which statement provides the most accurate analysis of their preferences and likely choices?
Analyzing Preferences in a Resource Allocation Scenario
Impact of Altruism on Allocation Choices
Altruism, Indifference Curves, and Strategic Choice
An individual's preferences about their own payoff versus another person's payoff can be represented by indifference curves. On a graph where the individual's own payoff is on the vertical axis and the other person's payoff is on the horizontal axis, match each type of preference to the shape of the indifference curve that represents it.
Consider two individuals, Player A and Player B, whose preferences for allocating a sum of money between themselves are represented by indifference curves. On a graph where a player's own payoff is on the vertical axis and the other player's payoff is on the horizontal axis, Player A's indifference curves are significantly steeper than Player B's. This implies that if both players were offered an identical choice between keeping the entire sum for themselves or splitting it evenly, Player A would be more likely than Player B to choose the even split.
Predicting Strategic Shifts from Changes in Altruism
Evaluating a Policy to Foster Cooperation
Analyzing a Shift in Allocation Strategy
An individual is deciding how to allocate a fixed sum of money between themself and another person. Their preferences are represented by a set of indifference curves on a graph, where their own payoff is on the vertical axis and the other person's payoff is on the horizontal axis. The possible allocations are shown by a straight, downward-sloping line. Initially, the individual chooses an allocation that gives a significant portion to the other person. If this individual's feeling of goodwill towards the other person decreases significantly, what is the most likely consequence for their indifference curves and their chosen allocation?