On the Demand for Grandchildren: Tied Transfers and the Demonstration Effect

Donald Cox () and Oded Stark
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Oded Stark: University of Bonn

No 158, Economics Series from Institute for Advanced Studies

Abstract: Most private giving between living generations takes the form of "tied" transfers, such as help with housing downpayments. We argue that parents provide help with downpayments in order to encourage the production of grandchildren, and that such a subsidization emanates from the "demonstration effect:" a child's propensity to furnish parents with attention and care can be conditioned by parental example. Parents who desire such transfers in the future have an incentive to make transfers to their own parents in order to instill appropriate preferences in their children. This generates a derived demand for grandchildren since potential grandparents will be treated better by their adult children if the latter have their own children to whom to demonstrate the appropriate behavior. Empirical work, based on waves 1 and 2 of the National Survey of Families and Households, indicates behavior consistent with subsidization of the production of grandchildren and the demonstration effect.

Keywords: Intergenerational transfers; The demonstration effect; Inculcating values in children; Subsidizing the production of grandchildren; Housing downpayments (search for similar items in EconPapers)
JEL-codes: A14 D10 I30 J13 J14 (search for similar items in EconPapers)
Date: Written
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http://www.ihs.ac.at/publications/eco/es-158.pdf First version, 2004 (application/pdf)

Related works:
Working Paper: ON THE DEMAND FOR GRANDCHILDREN: TIED TRANSFERS AND THE DEMONSTRATION EFFECT (2004)
Journal Article: On the demand for grandchildren: tied transfers and the demonstration effect (2005)
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