Altruism in economics means caring positively about other people’s well-being, not just your own consumption or income. It matters because it changes predictions about giving, cooperation, redistribution, and the provision of public goods.
A Simple Way To Model It
A common representation is:
[ U_i = u(c_i) + \alpha u(c_j), \qquad \alpha > 0 ]
where person i gets utility from their own consumption c_i and also puts positive weight on another person’s consumption c_j. If \alpha is larger, altruistic concern is stronger.
Why It Changes Economic Predictions
If people are purely self-interested, private giving to others or to public goods should often be low unless there is a direct return. Altruism changes that. People may donate, volunteer, cooperate, or support redistribution even when the private material payoff is small.
Economists also distinguish pure altruism from “warm glow.” Under warm glow, people enjoy the act of giving itself, even if total provision changes only a little.
Policy Relevance
Altruism matters for:
- private charity and philanthropy
- crowding out of private giving by government spending
- support for taxes and transfers
- household decisions involving children and family members
If people are purely altruistic toward a public good, government provision may crowd out private giving strongly. If warm glow matters, crowding out may be much smaller.