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Subgame perfect manipulation of children by overlapping generations of agents with two-sided altruism and endogenous fertility

  • Lakshmi K. Raut

    (University of Hawaii-Manoa)

In this paper we consider an overlapping generations model with endogenous fertility and two-sided altruism and show the limitations of applying commonly used open loop Nash equilibrium in characterizing equilibrium transfers from parents to children in the form of bequest, and transfers from children to parents as voluntary old-age support. Since in our model children are concerned with parents' old-age consumption, agents have incentives to save less for old age and to have more children so as to strategically induce their children to transfer more old-age support. We formulate such strategic behavior within a sequential multi-stage game and use the notion of subgame perfect equilibrium to study the consequences of such strategic manipulations on private intergenerational transfers, fertility and savings decisions, and on Pareto optimality of equilibrium allocation. We then examine the role of social security to correct such strategic distortions.

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Paper provided by EconWPA in its series Labor and Demography with number 9604003.

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Length: 16 pages
Date of creation: 05 Apr 1996
Date of revision:
Handle: RePEc:wpa:wuwpla:9604003
Note: Type of Document - Tex; prepared on IBM PC-TEX; to print on PostScript; pages: 16 ; figures: included. This is for electronic circulation to reduce our mailing and xerox cost.
Contact details of provider: Web page: http://128.118.178.162

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  1. Lakshmi Raut, 2006. "Two-sided altruism, Lindahl equilibrium, and Pareto optimality in overlapping generations models," Economic Theory, Springer, vol. 27(3), pages 729-736, 04.
  2. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
  3. Lakshmi Kanta Raut, 1992. "Effect of Social Security on Fertility and Savings: An Overlapping Generations Model," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27(1), pages 25-43, July.
  4. Shleifer, Andrei & Summers, Lawrence H. & Bernheim, B. Douglas, 1986. "The Strategic Bequest Motive," Scholarly Articles 3721794, Harvard University Department of Economics.
  5. Nishimura, K. & Zhang, J., 1990. "Pay-As-You-Go Public Pensions With Endogenous Fertility," Papers 202, Australian National University - Department of Economics.
  6. P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers 210, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December.
  8. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
  9. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
  10. Gary S. Becker & Robert J. Barro, . "A Reformulation of the Economic Theory of Fertility," University of Chicago - Population Research Center 85-11, Chicago - Population Research Center.
  11. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  12. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  13. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
  14. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  15. Pollak, Robert A, 1988. "Tied Transfers and Paternalistic Preferences," American Economic Review, American Economic Association, vol. 78(2), pages 240-44, May.
  16. Raut, L. K., 1990. "Capital accumulation, income distribution and endogenous fertility in an overlapping generations general equilibrium model," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 123-150, November.
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