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A Dynamic Model of Altruistically-Motivated Transfers

Author

Listed:
  • Daniel Barczyk

    (McGill University)

  • Matthias Kredler

    (Universidad Carlos III de Madrid)

Abstract

This paper studies a dynamic Markovian game of two infinitely-lived altruistic agents without commitment. Players can save, consume and give transfers to each other. We identify a continuum of equilibria in which imperfectly-altruistic agents act as if they were a perfectly-altruistic dynasty which is less patient than the two agents themselves. In such equilibria, the poor agent receives transfers until both effectively pool their wealth and tragedy-of-the-commons-type inefficiencies occur. We also provide a sharp characterization of strategic interactions in consumption and transfer behavior. This provides new insights relative to existing two-period models. It allows us to differentiate between the Samaritan's dilemma - e.g. a child runs down its assets inefficiently fast in anticipation of transfers - and what we refer to as the Prodigal-Son dilemma - e.g. parents do not leave an early bequest, anticipating a child's profligate behavior. (Copyright: Elsevier)

Suggested Citation

  • Daniel Barczyk & Matthias Kredler, 2014. "A Dynamic Model of Altruistically-Motivated Transfers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 303-328, April.
  • Handle: RePEc:red:issued:12-193
    DOI: 10.1016/j.red.2013.07.002
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    References listed on IDEAS

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    Cited by:

    1. Barczyk, Daniel, 2016. "Ricardian equivalence revisited: Deficits, gifts and bequests," Journal of Economic Dynamics and Control, Elsevier, vol. 63(C), pages 1-24.
    2. Daniel Barczyk, 2013. "Deficits, Gifts, and Bequests," 2013 Meeting Papers 25, Society for Economic Dynamics.

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