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Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange

  • Antonio Rangel

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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  13. 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.
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  17. 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.
  18. 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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