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Intergenerational Altruism and Social Welfare: A Critique of the Dynastic Model

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  • B. Douglas Bernheim

Abstract

In this paper, I show that, under relatively weak conditions, dynastic equilibria are never welfare optima. If a social planner sets policy to maximize a social welfare function, then, except in extreme cases where the planner cares only about a single generation, successive generations will never be linked through altruistically motivated transfers. This suggests that the dynastic model is unsuitable for normative analysis, and, to the extent governments actually behave in this manner, the model is also inappropriate for positive analysis. In addition, I show that, except in a few special cases, the planner's preferences are dynamically inconsistent. If the planner can successfully resolve this inconsistency, then the central result is somewhat modified.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2288.

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Date of creation: Jun 1987
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Publication status: published as "Intergenerational Altruism, Dynastic Equilibria, and Social Welfare." Review of Economic Studies, Vol. 56, pp. 118-128, January 1989.
Handle: RePEc:nbr:nberwo:2288

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  1. Bernheim, B Douglas & Bagwell, Kyle, 1988. "Is Everything Neutral?," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 308-38, April.
  2. Shleifer, Andrei & Summers, Lawrence H. & Bernheim, B. Douglas, 1986. "The Strategic Bequest Motive," Scholarly Articles 3721794, Harvard University Department of Economics.
  3. Abel, Andrew B & Bernheim, B Douglas, 1991. "Fiscal Policy with Impure Intergenerational Altruism," Econometrica, Econometric Society, vol. 59(6), pages 1687-1711, November.
  4. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April.
  5. Chamley, Christophe, 1981. "The Welfare Cost of Capital Income Taxation in a Growing Economy," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 468-96, June.
  6. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-48, February.
  7. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
  8. Willem H. Buiter & James Tobin, 1978. "Fiscal and Monetary Policies, Capital Formation, and Economic Activity," Cowles Foundation Discussion Papers 512, Cowles Foundation for Research in Economics, Yale University.
  9. Stephen A. O'Connell & Stephen P. Zeldes, . "Ponzi Games and Ricardian Equivalence," Rodney L. White Center for Financial Research Working Papers 12-87, Wharton School Rodney L. White Center for Financial Research.
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