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Counter-Compensatory Inter-Vivos Transfers and Parental Altruism: Compatibility or Orthogonality?

Author

Listed:
  • Stark, Oded

    (Department of Economics, University of Oslo)

  • Zhang, Junsen

    (Department of Economics, The Chinese University of Hong Kong)

Abstract

The intersection of the standard altruism hypothesis with the quite strong evidence that bequests tend to be equal suggests that inter-vivos transfers should be strongly compensatory. Yet the available evidence is not in congruence with this implication. It has therefore been inferred that the motive underlying inter-vivos transfers is not parental altruism. In this paper we present an argument showing why parents who are equally altruistic toward their children optimally transfer more to the child whose earnings are higher. We show that rather than being orthogonal to parental altruism, counter-compensating transfers emanate from such altruism. A key point in the analysis is that parents and children are interlinked in a rich web of (vertical and possibly horizontal) transfers, reverse transfers, direct transfers, and indirect transfers.

Suggested Citation

  • Stark, Oded & Zhang, Junsen, 2000. "Counter-Compensatory Inter-Vivos Transfers and Parental Altruism: Compatibility or Orthogonality?," Economics Series 82, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:82
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    File URL: http://www.ihs.ac.at/publications/eco/es-82.pdf
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    References listed on IDEAS

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    1. Paul L. Menchik, 1980. "Primogeniture, Equal Sharing, and the U.S. Distribution of Wealth," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 299-316.
    2. Cox, Donald & Rank, Mark R, 1992. "Inter-vivos Transfers and Intergenerational Exchange," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 305-314, May.
    3. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-1198, December.
    4. Stark, Oded, 1998. "Equal bequests and parental altruism: compatibility or orthogonality?," Economics Letters, Elsevier, vol. 60(2), pages 167-171, August.
    5. Wilhelm, Mark O, 1996. "Bequest Behavior and the Effect of Heirs' Earnings: Testing the Altruistic Model of Bequests," American Economic Review, American Economic Association, vol. 86(4), pages 874-892, September.
    6. Dunn, Thomas A. & Phillips, John W., 1997. "The timing and division of parental transfers to children," Economics Letters, Elsevier, vol. 54(2), pages 135-137, February.
    7. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    8. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-546, June.
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    Citations

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    Cited by:

    1. Wolff, Francois-Charles & Laferrere, Anne, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    2. repec:eee:jcecon:v:45:y:2017:i:2:p:261-270 is not listed on IDEAS
    3. Yang-Ming Chang, 2007. "Transfers and bequests: a portfolio analysis in a Nash game," Annals of Finance, Springer, vol. 3(2), pages 277-295, March.
    4. Stark, Oded, 2013. "On the economics of others," University of Tuebingen Working Papers in Economics and Finance 62, University of Tuebingen, Faculty of Economics and Social Sciences.
    5. Oded Stark & Anna Nicinska, 2015. "How Inheriting Affects Bequest Plans," Economica, London School of Economics and Political Science, vol. 82, pages 1126-1152, December.
    6. Laetitia Leroy & Antoine Bouet & Elisa Dienesch, 2012. "Trade liberalization, urban-rural remittances and income inequalities in Senegal: micro-foundations and empirical evidence in Computable General Equilibrium analysis," EcoMod2012 3829, EcoMod.
    7. James R Hines Jr & Niklas Potrafke & Marina Riem & Christoph Schinke, 2015. "Inter vivos transfers of ownership in family firms," Working Papers 1523, Oxford University Centre for Business Taxation.
    8. Nicholas, Aaron, 2012. "Fairness as a constraint on reciprocity: Playing simultaneously as dictator and trustee," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(2), pages 211-221.
    9. Yang-Ming Chang & Zijun Luo, 2015. "Endogenous division rules as a family constitution: strategic altruistic transfers and sibling competition," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(1), pages 173-194, January.
    10. Rodrigo J. Raad & Gilvan R. Guedes, 2014. "Bequest choices under uncertainty," Textos para Discussão Cedeplar-UFMG 504, Cedeplar, Universidade Federal de Minas Gerais.
    11. Raad, Rodrigo Jardim & Guedes, Gilvan Ramalho, 2015. "Private Transfer Choices under Uncertainty in Human Capital," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 69(1), March.

    More about this item

    Keywords

    Parental altruism; Inter-vivos transfers;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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