Testing Parental Altruism: Implications of a Dynamic Model
Each year parents transfer a great deal of money to their adult children. While intuition might suggest that these transfers are altruistic and made out of concern for the well-being of the children, the fundamental prediction of the altruistic model has been decisively rejected in empirical tests. Specifically, the required derivative restriction-that an increase of one dollar in the income of the recipient, accompanied by a decrease of one dollar in the income of the donor, leads to a one dollar reduction in transfers-fails to hold. I show in this paper that in fact, this prediction will not hold if parents use observations on the current incomes of children to update their expectations about future incomes. This result implies that many past studies have relied on too restrictive a test, and furthermore, that our ability to distinguish empirically between altruistic and exchange behavior is severely limited. The paper also analyzes the variation in transfer behavior over time and finds substantial change across periods in recipiency status as well as strong correlation between inter vivos transfers and the transitory income of the recipient. This evidence suggest that dynamic models can provide insights into transfer behavior that are impossible to obtain in a static context.
|Date of creation:||Mar 2000|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rosenzweig, Mark R & Wolpin, Kenneth I, 1994. "Parental and Public Transfers to Young Women and Their Children," American Economic Review, American Economic Association, vol. 84(5), pages 1195-1212, December.
- Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-577, June.
- 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.
- Donald Cox, 1990. "Intergenerational Transfers and Liquidity Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 187-217.
- Behrman, Jere R & Pollak, Robert A & Taubman, Paul, 1982. "Parental Preferences and Provision for Progeny," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 52-73, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7593. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.