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Altruism with Endogenous Labor Supply

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Author Info
Ana Fernandes (CEMFI)

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Abstract

This paper proposes a model of altruism with endogenous labor supply. A full characterization of the family's choices of consumption and leisure is provided. Initially, work effort is assumed to be publicly observed; this assumption is later relaxed, allowing for privately observed effort. It has been stated, in the altruism literature, that the distribution of resources within the family should not affect the allocation of consumption across its members. In other words, for families engaging in financial transfers, taking one dollar from the transfer recipient's income and adding it to the donor's should result in an increment of the initial transfer of exactly one dollar, leaving the consumption allocation unchanged. The endogenous consideration of labor supply introduces important qualifications to this "neutrality result," showing that neutrality holds only with respect to non-labor income sources. Further, when effort is privately observed, the need to convey incentives causes neutrality to break down entirely. Confronting the predictions of the model with empirical results from the literature, it is argued that, to the extent that data portray families having the ability to adjust their labor supply to changes in wages and income, there is no clear evidence of rejection of altruism. Moreover, when effort is privately observed, the predictions of the theory accord with the empirical results.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0844.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0844

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lindbeck, Assar & Weibull, Jorgen W, 1988. "Altruism and Time Consistency: The Economics of Fait Accompli," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1165-82, December. [Downloadable!] (restricted)
  2. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-46, June. [Downloadable!] (restricted)
  4. Cox, Donald & Rank, Mark R, 1992. "Inter-vivos Transfers and Intergenerational Exchange," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 305-14, May. [Downloadable!] (restricted)
  5. Joseph G. Altonji & Hidehiko Ichimura & Taisuke Otsu, 2008. "Estimating Derivatives in Nonseparable Models with Limited Dependent Variables," Cowles Foundation Discussion Papers 1668, Cowles Foundation, Yale University. [Downloadable!]
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  6. Donald Cox & Fredric Raines, 1985. "Interfamily Transfers and Income Redistribution," NBER Chapters, in: Horizontal Equity, Uncertainty, and Economic Well-Being, pages 393-426 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, . "The Effects of Income and Wealth on Time and MOney Transfers Between Parents and Children," IPR working papers 96-5, Institute for Policy Resarch at Northwestern University.
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  8. Ernesto Villanueva, 2002. "Parental Altruism under Imperfect Information: Theory and Evidence," Economics Working Papers 650, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  9. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  10. Roberta Gatti, 2005. "Family Altruism and Incentives," Scandinavian Journal of Economics, Blackwell Publishing, vol. 107(1), pages 67-81, 03. [Downloadable!] (restricted)
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  11. Chami, Ralph, 1996. "King Lear's dilemma: Precommitment versus the last word," Economics Letters, Elsevier, vol. 52(2), pages 171-176, August. [Downloadable!] (restricted)
  12. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December. [Downloadable!] (restricted)
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  13. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-66, December.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ernesto Villanueva, 2002. "Parental Altruism under Imperfect Information: Theory and Evidence," Economics Working Papers 650, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  2. Jellal, Mohamed, 2009. "A Theory of Educational Inequality Family and Agency Costs," MPRA Paper 17434, University Library of Munich, Germany. [Downloadable!]
  3. Josep Pijoan-Mas, 2003. "Precautionary Savings Or Working Longer Hours?," Working Papers wp2003_0311, CEMFI. [Downloadable!]
    Other versions:
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