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Intergenerational Transfers, Living Arrangements and Development

  • Alice Schoonbroodt

    (The University of Iowa)

Further, a combination of shifts in children's market opportunities and the introduction of PAYG social security may help account for fertility patterns, living arrangements and intergenerational wealth flows over the past two centuries. The theoretical model we have in mind shows that the optimal living arrangement until the beginning of the 19th century may have been the farm and community based extended family in which parents had full control over their adult children, high fertility would follow naturally. During the 19th and early 20th century, child labor and compulsory education policies were introduced while adult children's outside options (in emerging labor markets) increased significantly, which coincided with the fertility decline and an initial increase in education levels. The model also replicates this pattern. Given young adults' increasing opportunities, parents and children may then have agreed to separate, the parent thereby foregoing transfers from the children which are no longer enforceable. In 1937 the U.S. government introduced a PAYG social security system. Such a system tends to decrease the desire of parents to take from their children. Hence, desired transfers to children increase. These may come in the form of educational investments, which were increasingly profitable. Hence, this combination may have generated Caldwell (1978)'s reversal of net transfers between parents and children. Whether these channels indeed played a quantitatively important role in U.S. fertility history is an additional question here.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 158.

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Date of creation: 2012
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Handle: RePEc:red:sed012:158
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  1. Schoonbroodt, Alice & Tertilt, Michele, 2010. "Property rights and efficiency in OLG models with endogenous fertility," Discussion Paper Series In Economics And Econometrics 1020, Economics Division, School of Social Sciences, University of Southampton.
  2. Matthias Doepke, 2001. "Accounting for Fertility Decline During the Transition to Growth," UCLA Economics Working Papers 804, UCLA Department of Economics.
  3. Folbre, Nancy, 1994. "Children as Public Goods," American Economic Review, American Economic Association, vol. 84(2), pages 86-90, May.
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