Questions tagged [utility]

Utility, or usefulness, is the (perceived) ability of something to satisfy needs or wants.

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How do I compute the relative risk aversion of Epstein-Zin preferences?

$$ \newcommand{\E}{\mathbb{E}} $$ Preface This question is related to this one about the elasticity of intertemporal substitution and this one about the definition of absolute risk aversion. (It's ...
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utility maximization with nested Cobb–Douglas–CES preferences

I'm trying to understand the following paper: Hsieh & Ossa: A global view of productivity growth in China (2016). The pdf can be found here: https://faculty.chicagobooth.edu/chang-tai.hsieh/...
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Segal (2000) question about utility opportunity set

I am reading a JPE paper "Let's agree all dictatorship are equally bad" from Uzi Segal (2000). I have a small problem with this paper. We have the following Utility Opportunity Set (UOS): $$ S(w)=\{...
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What is the proper term for the “meta-value” of an object?

For instance, say I have a roll of quarters and a roll of dimes. I can use the dimes and quarters in a parking meter, but 50 cents in dimes gets me less time than 50 cents in quarters. Additionally, I ...
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Easterlin hypothesis

In my understanding, the seminal contribution of Easterlin (1974) showed that within a single cross section, both within and across countries, happiness correlates positively with income. However, ...
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Log-linearizing a non-separable utility function around the steady state

I've started reading Jordi Galí's Monetary Policy, Inflation and the Business Cycle (2nd ed., 2015). In section 2.5.2, Galí considers an example with the following non-separable period utility ...
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Linear Homothetic Utility

A Homothetic Utility is where $$ \forall x,y, \forall a \in \mathbb{R}_+: \ u(ax,ay)=au(x,y) $$ (or its monotonic transformation). A linear Homothetic utility is defined as $$ \forall x,y, \forall ...
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What is the difference between the discrete choice method and the generalised cost method in transport planning?

I have been using the generalised cost method in an agent based model. The generalised cost method enables each individual agent to make a decision on what mode of transport it will take given a range ...
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Utility theory or decision theory based on partial semiorders?

Roubens, Vincke & Pirlot have summarized and extended representation theorems for partial semiorders in the 80s and 90s. See e.g. Roubens, M. & Vincke, P.: Preference Modelling. Springer, 1985....
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Calculating price in a pure exchange economy

The problem is simple, I'm not really sure of my answer though. Consider an economy where there are two consumers and two goods: $$U_1(x_{11}, x_{21}) = x_{11}$$ $$U_2(x_{12}, x_{22}) = x_{22}$$ $...
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Fixes of quadratic utility when probability of decreasing utility is large

In finance and specifically portfolio theory, a popular utility function is quadratic utility $$ u(x)=x-\frac{\lambda}{2}(x-\mu_x)^2 $$ where $x$ is wealth and $\lambda$ is the parameter of risk ...
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Is anyone familiar with the following basic resource sharing model?

Here is a resource sharing model, I do not remember where I came across it, I am wondering if this is well known in econometrics. Let $T > 0$ be the total quantity of resources. For example, ad ...
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Demand equation with demographics

I am trying to reconcile the derivation of a demand equation with what I actually run in an OLS model. After solving $$max_{x_1,x_2}U(x_1,x_2)= \alpha ln(x_1) + \beta ln(x_2)$$ subject to $$p_1x_1+...
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Finding savings in an Overlapping Generations model

I have not seen this question asked anywhere, so I'm posing it here in case anybody else (hopefully) can help me get to the answer. In a nutshell, my question is: how do we arrive at the saving ...
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203 views

Fisher Separation with negative interest rate

In class we discussed Fisher Separation which states that the investment decision is independent of the financing decision. The optimality conditions are that MRS = MRT = (1+i) (i = interest rate). ...
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443 views

What is the difference between utility function and characteristic function

I read that normative theories such as social welfare and game theory have as tasks computing the peoples' (average) utility function in the first case, and the characteristic function in cooperative ...
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Becker Social Pricing and Lack of Smooth Demand

I was reading an article on Becker Social Pricing, where your demand for a good depends on other people's demand for the good. So basically this paper is meant to be a primer into explaining why some ...
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Can be the duality theorem applied to not locally non-satiated utility functions?

I have the following not locally non-satiated utility function: $$U(x,y)=-(x-1)^2-(y-2)^2$$ where $U(x,y): \, \!R^n_+ \rightarrow \!R $ The 3D plot of this function is an infinite paraboloid; ...
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227 views

Optimizing Cobb-Douglas like functions

Economics isn't my home field, but I'm looking for references for a paper I'm working on and I'm hoping one of you can help. Are there many good references for optimizing a Cobb-Douglas like utility ...
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What is the trade-off between? Consumption and Leisure or Income and Leisure?

When first presenting the utility function and its arguments, textbooks typically start by stating that utility is a function of consumption and leisure. See for example https://sites.hks.harvard.edu/...
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Rotation of Quasilinear Utility

Let $u(x,y)=f(x)+y$ be a quasilinear utility. Now we rotate it by 45 degrees, (such that the $x-$axis becomes the direction of $(1,1)$) $v(x,y)=f(x-y)+x+y$. Is $v$ also a quasilinear utility? What is ...
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What are the definitions of the terms value, wealth, and utility in economics?

Are there any definitions for the following three terms that are widely agreed upon in economics? Value Wealth Utility In particular, are these terms identical? If not, what differentiates them? I ...
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Three consumers three goods competitive equilibrium

I have the economy described by the three consumers above with their respective preferences and endowments. I'm not so sure about how to proceed towards the competitive equilibrium...
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1answer
63 views

What is the difference between solving for utility maximization separately or aggregately?

I derived the Walrasian equilibrium for an economy of two consumers with their respective utility functions (u1, u2) and initial endowments but later on I am asked to maximize (u1+u2). Does anyone ...
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Quasi-linear Optimal Consumption Bundle

I have a question involving optimal consumption bundles for quasi-linear preferences. Utility is given by $$U(x_1,x_2) = 16\sqrt{x_1} + 2x_2$$ and $p_1 = 8, p_2 = 4, I = 30$. What I have so far ...
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2answers
106 views

What is a good way to generate realistic utility curves?

I am aiming to program a basic simulation of a simplified economy to look at the impact of various interventions. The economy will have N groups of homogeneous consumers and M producer / employer ...
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Deriving Single Good Demand Curve

came across a problem set that I had no clue how to tackle, but looks painfully simple. It's a market for electricity where households utility is represented by: U(E) = aE - 2mL2 (Household Utility) ...
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Natural borrowing/debt limit and other borrowing constraints

When confronted with the simple household consumption maximization problem under uncertainty (and with Arrow security sequential trading) $$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
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General Equilibrium allocation holding fixed a consumer's utility

I'm having some issues with solving this general equilibrium exercise. The way I started off is by assuming that since consumer 2's utility is fixed, he will have a fixed utility function. Then ...
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What's the relation between deadweight-loss and alpha in Cobb-Douglas?

I'm studying for an exam and facing a question about the relationship between the $\alpha$ of the Cobb-Douglas function and the loss of utility of imposing taxes. If I have understood correctly, ...
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145 views

Intertemporal choice with no income flow in the second period

Question: Suppose Mr X maximises his utility for two periods, his total utility is given by log $c_1$ + $\beta$ log $c_2$ where $\beta$ $\in$ ( 0,1) and $c_1$ and $c_2$ are his consumption for ...
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Terminology for separability in price and value

Take an agent with mean-variance utility over something that is uncertain: $$ U(x) = \mu_x^\theta - \sigma_x^\lambda $$ $A\in \{0,1\}$ happens if $U(x)>0$, and $x$ is a random variable $$ A = \...
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Consumer's maximization problem

I am an undergrad trying to learn the basics of NK models (on my own) and I am having some difficulties understanding the derivation of certain equations. So we have the representative household ...
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38 views

General equilibrium allocation with “altriustic” utilities

Has any work been done on market allocations where market participants have utility functions that depend on other players' allocations? For example, suppose I have a general equilibrium model with ...
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Estimate the Utility function for the Principal-Agent problem (real case)

I have a company and I have to set the wage to my employer based on different levels of revenues. Examples W_1 if Revenue = 100k ...
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How does advertising improve the utility of a product?

In this research paper titled: Advertising Spillovers: Field-Experiment Evidence and Implications for Returns from Advertising, I come across the following ...
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Limits of utilitarianism?

In all of economics that I know, people maximize their Utility $U_i=f(x_1,...,x_n)$, and therefore make some kind of cost-benefit analysis. One obvious criticism to this model is that we often do not ...
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Creating utility function with certain properties

This is a fun little task I need help completing. Im creating a game-theoretical model for the utility a government get from labour rights (R) and FDI (F), and I need a utility function to have ...
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438 views

Utility function of a representative agent with quasilinear utility

Consider an economy with $n$ consumers with an identical utility function, which is quasilinear in $x$: $$ u_i(x,y) = x+u(y) $$ If we want to represent all consumers by a single representative ...
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References for “Capturing value”

I have seen in several places references to "capturing value". For example: Value Creation vs. Value Capture Work on Stuff that Matters: First Principles I think that such considerations are ...
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Kyle Models - Information Asymmetry - Certainty Equivalent

I have some significant questions that I am dealing with, but I only want the intuition behind of them. I would be grateful if someone could help me. Where should I find some precise definition of ...
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Moral hazard, bubbles, and economies of scale in limited companies and organizations

http://eprints.lse.ac.uk/100058/1/Goodhart_CEPR_DP13494.pdf What would be the disadvantage of limiting the liability to the product of the proportion of the company and the debt(a person with 2% of a ...
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Are marginal utilities or utilities compared?

Consider decision making in an economic model. Suppose that there is some utility and it is a function of consumption and leisure where leisure is full-time work, part-time work, or full-time ...
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Are there examples of Cost Benefit Analysis using diminishing marginal utility of income?

In Cost Benefit Analysis (CBA) constant Marginal Utility of Income (MUI) is usually assumed. This implies that a dollar received/earned is the same at low and high levels of income. In Social CBA, ...
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Is a combination of Political economics and Game theory possible and beneficial?

By Political economics I do not mean the "economical" advice given by some people(see the Wealth of Nations by Adam Smith) but rather the heavily mathematized subfield of Economics studying and trying ...
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robinson economy with production

Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss. The ...
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Question about an economy with 3 components household, firm and government with functions given

I've spent considerable amount of time on this question, in vain. It is from one of the competitive exams for admission to a grad econ program. Help would be tremendously appreciated. Thanks. An ...
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Is there a possibility to have an inferior good (x) in a utility function where x & y have 0 cross elasticity?

A question I got on an exam that I think I messed up on: If we have cross elasticity of 0 (x & y are independent), can x be an inferior good? I answered with a yes. Am I wrong?
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Does Preference have a Hierarchy? A Silly Question

I have what is probably a very silly question, but I have gone down the rabbit hole and can’t get back out..... Is there is a hierarchy of preference, and within each level of choice do we reset the ...
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Is utility function used in customer data/profile analysis? What alternatives in practice?

Utility function is great theoretical concept but is it used in customer data analysis or in building customer profile (e.g. from Big data or cash register/checkout data, ecommerce history) or in ...