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Altruism with Endogenous Labor Supply

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  • Ana Fernandes

    (CEMFI)

Abstract

This paper proposes a model of altruism with endogenous labor supply. A full characterization of the family's choices of consumption and leisure is provided. Initially, work effort is assumed to be publicly observed; this assumption is later relaxed, allowing for privately observed effort. It has been stated, in the altruism literature, that the distribution of resources within the family should not affect the allocation of consumption across its members. In other words, for families engaging in financial transfers, taking one dollar from the transfer recipient's income and adding it to the donor's should result in an increment of the initial transfer of exactly one dollar, leaving the consumption allocation unchanged. The endogenous consideration of labor supply introduces important qualifications to this "neutrality result," showing that neutrality holds only with respect to non-labor income sources. Further, when effort is privately observed, the need to convey incentives causes neutrality to break down entirely. Confronting the predictions of the model with empirical results from the literature, it is argued that, to the extent that data portray families having the ability to adjust their labor supply to changes in wages and income, there is no clear evidence of rejection of altruism. Moreover, when effort is privately observed, the predictions of the theory accord with the empirical results.

Suggested Citation

  • Ana Fernandes, 2000. "Altruism with Endogenous Labor Supply," Econometric Society World Congress 2000 Contributed Papers 0844, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0844
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    References listed on IDEAS

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    13. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, "undated". "The Effects of Income and Wealth on Time and MOney Transfers Between Parents and Children," IPR working papers 96-5, Institute for Policy Resarch at Northwestern University.
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    Cited by:

    1. Wolff, Francois-Charles, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    2. Ernesto Villanueva, 2001. "Parental altruism under imperfect information: Theory and evidence," Economics Working Papers 566, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2002.
    3. Mohamed Jellal & FranÁois-Charles Wolff, 2003. "Leaving Home as a Self-selection Device," Economica, London School of Economics and Political Science, vol. 70(279), pages 423-438, August.
    4. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.
    5. Ana Fernandes, 2011. "Altruism, labor supply and redistributive neutrality," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1443-1469, October.
    6. Jellal, Mohamed, 2014. "A theory of family education incentives and inequality," MPRA Paper 57913, University Library of Munich, Germany.
    7. Jellal, Mohamed, 2009. "A Theory of Educational Inequality Family and Agency Costs," MPRA Paper 17434, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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