Altruism and the Transfer Paradox

Abstract

The paper examines whether altruism causes the transfer paradox in the model with two countries and two goods. Unlike the existing literature on the subject in which the people in the donor country maximize their own utility and do not care about the people in the recipient country, we analyze a situation in which the consumers of the donor and recipient countries have altruistic utility. We demonstrate that if the Walrasian stability condition is satisfied in the general equilibrium, the transfer paradox can never take place irrespective of the definition of utility. The result suggests that the motivation for transfer cannot be explained by the donor’s enrichment because it is not caused by the introduction of altruism into the model.