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Intergenerational altruism with future bias

Francisco Gonzalez (), Itziar Lazkano () and Sjak Smulders ()

Journal of Economic Theory, 2018, vol. 178, issue C, 436-454

Abstract: We show that standard preferences of altruistic overlapping generations exhibit future bias, which involves preference reversals associated with increasing impatience. This underlies a conflict of interest between successive generations. We explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time. We argue that future bias creates incentives to legislate and sustain a pay-as-you-go pension system, which every government views as a self-enforcing commitment mechanism to increase future old-age transfers.

Keywords: Intergenerational altruism; Future bias; Time inconsistency; β–δ Discounting; Pay-as-you-go pension plans (search for similar items in EconPapers)
JEL-codes: D71 D72 H55 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jetheo:v:178:y:2018:i:c:p:436-454