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A Dynamic Model of Altruistically-Motivated Transfers

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Author Info

  • Daniel Barczyk

    (McGill University)

  • Matthias Kredler

    (Universidad Carlos III de Madrid)

Abstract

This paper studies a dynamic Markovian game of two infinitely-lived altruistic agents without commitment. Players can save, consume and give transfers to each other. We identify a continuum of equilibria in which imperfectly-altruistic agents act as if they were a perfectly-altruistic dynasty which is less patient than the two agents themselves. In such equilibria, the poor agent receives transfers until both effectively pool their wealth and tragedy-of-the-commons-type inefficiencies occur. We also provide a sharp characterization of strategic interactions in consumption and transfer behavior. This provides new insights relative to existing two-period models. It allows us to differentiate between the Samaritan's dilemma - e.g. a child runs down its assets inefficiently fast in anticipation of transfers - and what we refer to as the Prodigal-Son dilemma - e.g. parents do not leave an early bequest, anticipating a child's profligate behavior. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2013.07.002
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 17 (2014)
Issue (Month): 2 (April)
Pages: 303-328

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Handle: RePEc:red:issued:12-193

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Related research

Keywords: consumption-saving decisions; inter-vivos transfers; altruism; differential games;

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References

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  1. repec:fth:stanho:e-88-35 is not listed on IDEAS
  2. Shinichi Nishiyama, 2002. "Bequests, Inter Vivos Transfers, and Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 892-931, October.
  3. Maurizio Mazzocco, 2007. "Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 857-895.
  4. Daniel Barczyk, 2013. "Deficits, Gifts, and Bequests," 2013 Meeting Papers 25, Society for Economic Dynamics.
  5. Bruce, Neil & Waldman, Michael, 1990. "The Rotten-Kid Theorem Meets the Samaritan's Dilemma," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 155-65, February.
  6. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, October.
  7. Fernandes, Ana, 2012. "A Closed-Form Solution To A Model Of Two-Sided, Partial Altruism," Macroeconomic Dynamics, Cambridge University Press, vol. 16(02), pages 230-239, April.
  8. Laitner, John, 1988. "Bequests, Gifts, and Social Security," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 275-99, April.
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Cited by:
  1. Daniel Barczyk, 2013. "Deficits, Gifts, and Bequests," 2013 Meeting Papers 25, Society for Economic Dynamics.

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