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Intergenerational altruism with future bias

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  • Gonzalez, Francisco M.
  • Lazkano, Itziar
  • Smulders, Sjak A.

Abstract

We show that standard preferences of altruistic overlapping generations exhibit future bias, which involves preference reversals associated with increasing impatience. This underlies a conflict of interest between successive generations. We explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time. We argue that future bias creates incentives to legislate and sustain a pay-as-you-go pension system, which every government views as a self-enforcing commitment mechanism to increase future old-age transfers.

Suggested Citation

  • Gonzalez, Francisco M. & Lazkano, Itziar & Smulders, Sjak A., 2018. "Intergenerational altruism with future bias," Journal of Economic Theory, Elsevier, vol. 178(C), pages 436-454.
    • Handle: RePEc:eee:jetheo:v:178:y:2018:i:c:p:436-454
    DOI: 10.1016/j.jet.2018.10.004
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    More about this item

    Keywords

    Intergenerational altruism; Future bias; Time inconsistency; β–δ Discounting; Pay-as-you-go pension plans;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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