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Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange

  • Antonio Rangel

This paper develops a theory of intergenerational exchange for generations that are either selfish or have non-dynastic altruism. The main building blocks of the theory are forward and backward intergenerational goods (FIGs and BIGs) and the relationship between them. A FIG is a transfer from present to future generations, like parental investments in education and the preservation of the environment. A BIG is a transfer from future to present generations, like pay-as -you-go social security or taking care of elderly parents. We show that there is a fundamental difference between BIGs and FIGs. BIGs generating a positive surplus are self-sustainable, but FIGs never are. However, even with selfish generations, optimal investment in future generations can take place if the equilibrium social norm links BIGs and FIGs. The tools developed here can be used to understand a wide class of intergenerational problems, from the political economy of environmental treaties to the economics of seniority institutions. Two applications are developed in the paper: (1) the political economy of intergenerational public expenditures, and (2) investment in children within the family.

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File URL: http://www.nber.org/papers/w7518.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7518.

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Date of creation: Feb 2000
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Publication status: published as Rangel, Antonio. "Forward And Backward Intergenerational Goods: Why Is Social Security Good For The Environment?," American Economic Review, 2003, v93(3,Jun), 813-824.
Handle: RePEc:nbr:nberwo:7518
Note: AG PE
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  14. Bendor, Jonathan & Mookherjee, Dilip, 1990. "Norms, Third-Party Sanctions, and Cooperation," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 33-63, Spring.
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  16. Sandler, Todd & Doeleman, Jacobus A., 1998. "The Intergenerational Case of Missing Markets and Missing Voters," Staff General Research Papers 1217, Iowa State University, Department of Economics.
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  20. Bohn, Henning, 1999. "Will social security and Medicare remain viable as the U.S. population is aging?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 1-53, June.
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