Transfers within a Three Generations Family: When the Rotten Kids Turn into Altruistic Parents

Helmuth Cremer and Kerstin Roeder ()

No 8264, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study exchanges between three overlapping generations with non-dynastic altruism. The middleaged choose informal care provided to their parents and education expenditures for their children. The young enjoy their education, while the old may leave a bequest to their children. Within each period the three generations play a “game” inspired by Becker's (1974, 1991) rotten kids framework, with the added features that the rotten kids turn into the altruistic parent in the next period and that parents invest in the education of their children. We show that Becker's rotten kids theorem holds for the single period game in that informal aid is set according to an efficient rule. However, education is distorted upwards. In the stationary equilibrium the levels of both transfers are inefficient: education is too large and informal aid is too low.

Keywords: subgame perfect equilibrium; long-term care; education; altruism; rotten kids; overlapping generations (search for similar items in EconPapers)
JEL-codes: D7 D9 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2014-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Economics Letters, 2014,124, 392-395

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Related works:
Journal Article: Transfers within a three generations family: When the rotten kids turn into altruistic parents (2014)
Working Paper: Transfers within a three Generations Family: When the Rotten Kids Turn into Altruistic Parents (2014)
Working Paper: Transfers within a three generations family: when the rotten kids turn into altruistic parents (2014)
Working Paper: Transfers within a three generations family: when the rotten kids turn into altruistic parents (2014)
Working Paper: Transfers within a three generations family: when the rotten kids turn into altruistic parents (2014)
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