Old-Age Income Support, Human Capital Investment, and Efficiency: Rotten-Kid Theorem Meets Samaritan's Dilemma

Alok Kumar ()

No 1902, Department Discussion Papers from Department of Economics, University of Victoria

Abstract: This paper studies the interaction between investment by parents in the human capital of their children and income support received by parents from them in their old age (reverse transfers). I find that reversetransfers lead to an inefficiently high level of human capital investment, when children choose reverse transfers non-cooperatively. The choice of human capital investment imposes a positive externality on parents. An increase in the human capital investment of a child not only increases transfers from him/her to parents, but also increases transfers from the other child. When children cooperate, this externality is internalized leading to efficient level of human capital investment. Old-age pension scheme financed by taxes on children can lead to efficient level of human capital investment by parents.

Keywords: Human Capital Investment; Old-Age Income Support; Multiple Children; Positive Externality; Rotten-Kid Theorem; Samaritan’s Dilemma (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-03-18
New Economics Papers: this item is included in nep-age
Note: ISSN 1914-2838 JEL Classifications: J22, I20, D60
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Persistent link: https://EconPapers.repec.org/RePEc:vic:vicddp:1902

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