Affiliations: Department of Social Science, The New York City College of Technology, The City University of New York, 300 Jay Street, Brooklyn, New York 11201, USA. E-mail: [email protected]
Abstract: Altruistic behavior is typically defined as an action(s) that could increase another’s welfare. This can result from motivations that are self-serving. For example, on a national level, it affects a countries’ consumption through an expansion of trade. When growth in one country’s consumption raises marginal utility of consumption in another country, altruism can be considered self-serving. In this paper, using this framework, economic reciprocity in countries’ preferences are introduced to highlight the importance of trade. Our results indicate an existence of self-serving altruism when both countries are reciprocally self-altruistic. The underlying results depend on countries’ preferences, cost structure and trades with implications for consumption and prices. Since each country’s utility function includes both domestic and foreign countries’ consumption, we use a multi-agent Cournot model. In this paper, the price paid by one country for the growth of consumption by another country is defined as an altruistic premium. Besides the demand side, where inverse demand prices are set using a Nash conjecture, we study the supply side with an analysis of trade and determine optimal global supply. When supply capacities are constrained in one country (or in both), imports and exports modify the basic supply side economy. Different cases that may lead to purchasing power parity (PPP) are shown emphasizing both prices and global marginal costs. PPP in the supply side and in the demand side are distinguished. This paper shows that parity exists for prices under PPP, as well as for production costs. Under this framework, a number of international trade issues, including the effects of foreign exchange rates and the effects of altruism on prices with specific examples are elaborated.
Keywords: Altruism, utility of consumption, trade, foreign exchange rate