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Transfers within a three generations family: when the rotten kids turn into altruistic parents

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  • Cremer, Helmuth
  • Roeder, Kerstin

Abstract

We study exchanges between three overlapping generations with non-dynastic altruism. The middleaged choose informal care provided to their parents and education expenditures for their children. The young enjoy their education, while the old may leave a bequest to their children. Within each period the three generations play a “game” inspired by Becker’s (1974, 1991) rotten kids framework, with the added features that the rotten kids turn into the altruistic parent in the next period and that parents invest in the education of their children. We show that Becker’s rotten kids theorem holds for the single period game in that informal aid is set according to an efficient rule. However, education is distorted upwards. In the stationary equilibrium the levels of both transfers are inefficient: education is too large and informal aid is too low.

Suggested Citation

  • Cremer, Helmuth & Roeder, Kerstin, 2014. "Transfers within a three generations family: when the rotten kids turn into altruistic parents," TSE Working Papers 14-497, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:28281
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    References listed on IDEAS

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    1. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-1093, Nov.-Dec..
    2. Helmuth Cremer & Kerstin Roeder, 2013. "Long-Term Care and Lazy Rotten Kids," CESifo Working Paper Series 4372, CESifo Group Munich.
    3. Cremer, Helmuth & Kessler, Denis & Pestieau, Pierre, 1992. "Intergenerational transfers within the family," European Economic Review, Elsevier, vol. 36(1), pages 1-16, January.
    4. Glomm, Gerhard & Ravikumar, B. & Schiopu, Ioana C., 2011. "The Political Economy of Education Funding," Handbook of the Economics of Education, Elsevier.
    5. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
    6. Oded, Galor, 2011. "Inequality, Human Capital Formation, and the Process of Development," Handbook of the Economics of Education, Elsevier.
    7. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June.
    8. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
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    Cited by:

    1. Lesly Cassin, 2018. "The effects of migration and pollution externality on cognitive skills in Caribbean economies: a Theoretical analysis," EconomiX Working Papers 2018-30, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    rotten kids; altruism; education; long-term care; subgame perfect equilibrium; overlapping generations;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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