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Rotten Spouses, Family Transfers and Public Goods

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  • Cremer, Helmuth

    ()
    (Toulouse School of Economics)

  • Roeder, Kerstin

    ()
    (University of Munich)

Abstract

We show that once interfamily exchanges are considered, Becker's rotten kids mechanism has some remarkable implications that have gone hitherto unnoticed. Specifically, we establish that Cornes and Silva's (1999) result of efficiency in the contribution game amongst siblings extends to a setting where the contributors (spouses) belong to different families. More strikingly still, the mechanism does not just have consequences for efficiency but it may have dramatic redistributive implications. In particular, we show that the rotten kids mechanism combined with a contribution game to a household public good may lead to an astonishing equalization of consumptions between the spouses and their parents, even when their parents' wealth levels differ. We consider two families, each consisting of a parent and an adult child, who are "linked" by the young spouses. Children contribute part of their time to a household (couple) public good and provide attention to their respective parents "in exchange" for a bequest. Spouses behave towards their respective parents like Becker's rotten kids; they are purely selfish and anticipate that their altruistic parents will leave them a bequest. The most striking results obtain when wages are equal and when parents' initial wealth levels are not too different. For very large wealth differences the mechanism must be supplemented by a (mandatory) transfer that brings them back into the relevant range. When wages differ but are similar the outcome will be near efficient (and near egalitarian).

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7998.

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Length: 23 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:iza:izadps:dp7998

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Keywords: rotten kids; altruism; private provision of public good; subgame perfect equilibrium; family aid;

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References

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  1. Helmuth Cremer & Kerstin Roeder, 2013. "Long-Term Care and Lazy Rotten Kids," CESifo Working Paper Series 4372, CESifo Group Munich.
  2. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026272040x, December.
  3. Wolff, Francois-Charles, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier, Elsevier.
  4. Richard C. Cornes & Emilson C.D. Silva, 1997. "Rotten Kids, Purity and Perfection," Keele Department of Economics Discussion Papers (1995-2001), Department of Economics, Keele University 97/13, Department of Economics, Keele University.
  5. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, Elsevier, vol. 29(1), pages 25-49, February.
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