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Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange

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  • Antonio Rangel

Abstract

December 1999 This papers develops a theory of intergenerational exchange for generations that are either selfish or have non-dynastic altruism. The main building blocks of the theory are forward and backward intergenerational goods (FIGs and BIGs) and the relationship between them. A FIG is a transfer from present to future generations, like parental investments in education and the preservation of the environment. A BIG is a transfer from future to present generations, like pay-as-you-go social security or taking care of elderly parents. We show that there is a fundamental difference between BIGs and FIGs. BIGs generating a positive surplus are self-sustainable, but FIGs never are. However, even with selfish generations, optimal investment in future generations can take place if the equilibrium social norm links BIGs and FIGs. The tools developed here can be used to understand a wide class of intergenerational problems, from the political economy of environmental treaties to the economics of seniority institutions. Two applications are developed in the paper: (1) the political economy of intergenerational public expenditures, and (2) investment in children within the family. JEL codes: H0, H3, H4, I2, D1, D7, C7, E6

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 00001.

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Date of creation: Dec 1999
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Handle: RePEc:wop:stanec:00001

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  1. Bhaskar, V., 1994. "Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems," Papers 9485, Tilburg - Center for Economic Research.
  2. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
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  5. Ray, Debraj, 1987. "Nonpaternalistic intergenerational altruism," Journal of Economic Theory, Elsevier, vol. 41(1), pages 112-132, February.
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  8. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  9. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  10. Antonio Rangel & Richard Zeckhauser, 2001. "Can Market and Voting Institutions Generate Optimal Intergenerational Risk Sharing?," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 113-152 National Bureau of Economic Research, Inc.
  11. Laurence J. Kotlikoff & Robert W. Rosenthal, 1993. "Some Inefficiency Implications Of Generational Politics And Exchange," Economics and Politics, Wiley Blackwell, vol. 5(1), pages 27-42, 03.
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  16. Casey B Mulligan, 1999. "Gerontocracy, Retirement, and Social Security," University of Chicago - George G. Stigler Center for Study of Economy and State 154, Chicago - Center for Study of Economy and State.
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Cited by:
  1. Boldrin, Michele & Montes, Ana, 2002. "The Intergenerational State: Education and Pensions," CEPR Discussion Papers 3275, C.E.P.R. Discussion Papers.
  2. Poutvaara, Panu, 2006. "On the political economy of social security and public education," Munich Reprints in Economics 19551, University of Munich, Department of Economics.
  3. Antoine Bommier & Ronald Lee & Tim Miller & St├ęphane Zuber, 2010. "Who Wins and Who Loses? Public Transfer Accounts for US Generations Born 1850 to 2090," Population and Development Review, The Population Council, Inc., vol. 36(1), pages 1-26.
  4. Panu Poutvaara, 2002. "Gerontocracy Revisited: Unilateral Transfer to the Young May Benefit the Middle-aged," Discussion Papers 275, Government Institute for Economic Research Finland (VATT).
  5. Andreas Wagener, 2002. "Intergenerational Transfer Schemes as Incomplete Social Contracts," Constitutional Political Economy, Springer, vol. 13(4), pages 337-359, December.
  6. Findeis, Jill L., 2002. "Subjective Equilibrium Theory of the Farm Household: Theory Revisited and New Directions," Workshop on the Farm Household-Firm Unit: Its Importance in Agriculture and Implications for Statistics, April 12-13, 2002, Wye Campus,Imperial College 15723, International Agricultural Policy Reform and Adjustment Project (IAPRAP).
  7. Abhijit Banerjee, 2007. "Educational Policy and the Economics of the Family," Working Papers id:1186, eSocialSciences.
  8. Banerjee, Abhijit V., 2004. "Educational policy and the economics of the family," Journal of Development Economics, Elsevier, vol. 74(1), pages 3-32, June.

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