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Altruistically motivated transfers under uncertainty

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  • Daniel Barczyk
  • Matthias Kredler

Abstract

How do families behave dynamically? We provide a framework for studying economic problems in which family behavior is essential. Our key innovation is the inclusion of imperfectly altruistic agents in an otherwise standard consumption–savings problem with exogenous income risk. This gives rise to altruistic transfers and strategic behavior in the consumption–savings decision. We study the Markov‐perfect equilibrium that arises from the limit of equilibria in a sequence of finite games. The equilibrium's transfer patterns are empirically plausible. Furthermore, agents overconsume relative to the social optimum. In contrast to two‐period models, both the richer and the poorer players overconsume long before transfers actually occur. The poorer agent also faces incentives to engage in excessive risk‐taking because losses from a gamble are absorbed by both while gains are enjoyed alone.

Suggested Citation

  • Daniel Barczyk & Matthias Kredler, 2014. "Altruistically motivated transfers under uncertainty," Quantitative Economics, Econometric Society, vol. 5(3), pages 705-749, November.
  • Handle: RePEc:wly:quante:v:5:y:2014:i:3:p:705-749
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    Cited by:

    1. Yves Achdou & Jiequn Han & Jean-Michel Lasry & Pierre-Louis Lions & Benjamin Moll, 2017. "Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach," NBER Working Papers 23732, National Bureau of Economic Research, Inc.
    2. Barczyk, Daniel, 2016. "Ricardian equivalence revisited: Deficits, gifts and bequests," Journal of Economic Dynamics and Control, Elsevier, vol. 63(C), pages 1-24.
    3. 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.
    4. Corina Boar, 2017. "Dynastic Precautionary Savings," 2017 Meeting Papers 343, Society for Economic Dynamics.
    5. Greg Kaplan, 2012. "Moving Back Home: Insurance against Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 120(3), pages 446-512.
    6. Julian Kozlowski & Diego Daruich, 2016. "Explaining Income Inequality and Intergenerational Mobility: The Role of Fertility and Family Transfers," 2016 Meeting Papers 665, Society for Economic Dynamics.
    7. Daniel Barczyk, 2013. "Deficits, Gifts, and Bequests," 2013 Meeting Papers 25, Society for Economic Dynamics.
    8. 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.

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