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Sustaining Inter-Generational Altruism When Social Memory Is Bounded

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  • V. Bhaskar

    (Delhi School of Economics)

Abstract

We consider an infinite horizon overlapping generation’s economy where agents are endowed with a perishable and finitely divisible good when young, and are unendowed when old. Dynamic efficiency requires some transfer of the good from the young to the old. However, such transfers cannot be supported by pure-strategy sequential equilibria when social memory is bounded, so that an agent only observes the _transfers of a finite number of previous agents. Mixed strategies allow transfers to be sustained; however, these equilibria are not robust. If each agent's utility function is subjected to a small random perturbation, these mixed strategy equilibria-unravel, and only the zero-transfer equilibrium survives. These results extend when we allow the commodity to be perfectly divisible. We also suggest that money may play an informational role in this context, as a device for overcoming the boundedness of social memory.

Suggested Citation

  • V. Bhaskar, 1994. "Sustaining Inter-Generational Altruism When Social Memory Is Bounded," Working papers 10, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:10
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    References listed on IDEAS

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    1. Michihiro Kandori, 1992. "Repeated Games Played by Overlapping Generations of Players," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 81-92.
    2. Jacques Cremer, 1986. "Cooperation in Ongoing Organizations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 33-49.
    3. Esteban Joan Maria & Sakovics Jozsef, 1993. "Intertemporal Transfer Institutions," Journal of Economic Theory, Elsevier, vol. 61(2), pages 189-205, December.
    4. Salant, David J., 1991. "A repeated game with finitely lived overlapping generations of players," Games and Economic Behavior, Elsevier, vol. 3(2), pages 244-259, May.
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