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Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange

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  • Antonio Rangel

Abstract

December 1999 This papers 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. JEL codes: H0, H3, H4, I2, D1, D7, C7, E6

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 00001.

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Date of creation: Dec 1999
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Handle: RePEc:wop:stanec:00001
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Find related papers by JEL classification:
  • H0 - Public Economics - - General
  • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
  • H4 - Public Economics - - Publicly Provided Goods
  • I2 - Health, Education, and Welfare - - Education
  • D1 - Microeconomics - - Household Behavior
  • D7 - Microeconomics - - Analysis of Collective Decision-Making
  • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
  • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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  1. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
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  3. Laurence J. Kotlikoff & Robert W. Rosenthal, 1990. "Some Inefficiency Implication of Generational Politics and Exchange," NBER Working Papers 3354, National Bureau of Economic Research, Inc.
  4. Antonio Rangel & Richard Zeckhauser, 1999. "Can Market and Voting Institutions Generate Optimal Intergenerational Risk Sharing?," NBER Working Papers 6949, National Bureau of Economic Research, Inc.
  5. Gary S. Becker & Kevin M. Murphy, . "The Family and the State," University of Chicago - Population Research Center 87-15, Chicago - Population Research Center.
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  8. 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.
  9. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  10. Henk Folmer & Pierre Mouche & Shannon Ragland, 1993. "Interconnected games and international environmental problems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(4), pages 313-335, August.
  11. V. Bhaskar, 1998. "Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 135-149.
  12. Jacobus A. Doeleman & Todd Sandler, 1998. "The Intergenerational Case of Missing Markets and Missing Voters," Land Economics, University of Wisconsin Press, vol. 74(1), pages 1-15.
  13. Salant, David J., 1991. "A repeated game with finitely lived overlapping generations of players," Games and Economic Behavior, Elsevier, vol. 3(2), pages 244-259, May.
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  15. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-66, December.
  16. Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, vol. 78(4), pages 662-77, September.
  17. 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.
  18. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  19. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  20. Laitner, John, 1993. "Intergenerational and interhousehold economic links," Handbook of Population and Family Economics, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 5, pages 189-238 Elsevier.
  21. Montes Alonso, Ana & Boldrin, Michele, 1998. "Intergenerational transfer institutions public education and public pensions," UC3M Working papers. Economics 6148, Universidad Carlos III de Madrid. Departamento de Economía.
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Cited by:

  1. Poutvaara, Panu, 2006. "On the political economy of social security and public education," Munich Reprints in Economics 19551, University of Munich, Department of Economics.
  2. Findeis, Jill L., 2002. "Subjective Equilibrium Theory of the Farm Household: Theory Revisited and New Directions," Workshop on the Farm Household-Firm Unit: Its Importance in Agriculture and Implications for Statistics, April 12-13, 2002, Wye Campus,Imperial College 15723, International Agricultural Policy Reform and Adjustment Project (IAPRAP).
  3. Panu Poutvaara, 2001. "Gerontocracy Revisited. Unilateral Transfer to the Young May Benefit the Middle-Aged," CESifo Working Paper Series 500, CESifo Group Munich.
  4. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
  5. Antoine Bommier & Ronald Lee & Timothy Miller & Stephane Zuber, 2004. "Who Wins and Who Loses? Public Transfer Accounts for US Generations Born 1850 to 2090," NBER Working Papers 10969, National Bureau of Economic Research, Inc.
  6. Banerjee, Abhijit V., 2004. "Educational policy and the economics of the family," Journal of Development Economics, Elsevier, vol. 74(1), pages 3-32, June.
  7. Abhijit Banerjee, 2007. "Educational Policy and the Economics of the Family," Working Papers id:1186, eSocialSciences.
  8. Andreas Wagener, 2002. "Intergenerational Transfer Schemes as Incomplete Social Contracts," Constitutional Political Economy, Springer, vol. 13(4), pages 337-359, December.
  9. Kent Smetters, 2001. "The Equivalence of the Social Security's Trust Fund Portfolio Allocation and Capital Income Tax Policy," NBER Working Papers 8259, National Bureau of Economic Research, Inc.

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