Sophal and Madeline consume potato chips. While Sophal is a standard decision maker, Madeline exhibits a...
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Sophal and Madeline consume potato chips. While Sophal is a standard decision maker, Madeline exhibits a positive internality, overconsuming potato chips. You are a benevolent social planner evaluating the impact of a nudge on social welfare. The nudge only impacts Madeline's behavior, reducing her potato chip consumption and increasing her experienced utility from chip consumption. However, the nudge also imposes a psychological cost C> 0 on everyone. Let the experienced utilities for each consumer, net of the psychological nudge cost be as follows: Sophal's Experienced Utility No Nudge With Nudge 10 8 10 - C 14- C Madeline's Experienced Utility a. Does the nudge generate a Pareto improvement? Why or why not? b. Suppose that you evaluate social welfare as a utilitarian. For what range of C does the nudge improve social welfare? c. Suppose that you evaluate social welfare as a Rawlsian. For what range of C does the nudge improve social welfare? d. Suppose that Madeline's experienced utility with the nudge is 20 - C instead of 14 - C. How do your answers in parts (b) and (c) change? Interpret Sophal and Madeline consume potato chips. While Sophal is a standard decision maker, Madeline exhibits a positive internality, overconsuming potato chips. You are a benevolent social planner evaluating the impact of a nudge on social welfare. The nudge only impacts Madeline's behavior, reducing her potato chip consumption and increasing her experienced utility from chip consumption. However, the nudge also imposes a psychological cost C> 0 on everyone. Let the experienced utilities for each consumer, net of the psychological nudge cost be as follows: Sophal's Experienced Utility No Nudge With Nudge 10 8 10 - C 14- C Madeline's Experienced Utility a. Does the nudge generate a Pareto improvement? Why or why not? b. Suppose that you evaluate social welfare as a utilitarian. For what range of C does the nudge improve social welfare? c. Suppose that you evaluate social welfare as a Rawlsian. For what range of C does the nudge improve social welfare? d. Suppose that Madeline's experienced utility with the nudge is 20 - C instead of 14 - C. How do your answers in parts (b) and (c) change? Interpret
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