Us and Them: Distributional Preferences in Small and Large Groups
We analyze distributional preferences in games in which a decider chooses the provision\nof a good that benefits a receiver and creates costs for a group of payers.\nThe average decider takes into account the welfare of all parties and has concerns\nfor efficiency. However, she attaches similar weights to small and large groups so\nthat she neglects large provision costs that are dispersed among many payers. This\nholds regardless of whether the decider benefits from the provision or not. A CES\nutility function which rationalizes average behavior implies altruism in bilateral\nsituations and welfare-damaging actions when costs are dispersed.