Title

A model of intergenerational transfers

Document Type

Journal article

Source Publication

Economic Theory

Publication Date

3-1-2001

Volume

17

Issue

2

First Page

399

Last Page

418

Keywords

Intergenerational transfer, Life-cycle hypothesis, Markov perfect equilibrium

Abstract

Extending some existing literature, this paper formalizes the idea that intergenerational transfers occur because people care about the "characteristics" (i.e quantity and quality) of their offspring, rather than their children's welfare per se or consumption. The model analyzes this transfer motive in an infinite Markovian game framework, and it proves the existence of a stationary Markov Perfect equilibrium. Further, the analysis shows that under certain conditions, the proposed transfer motive will diminish, as the average income of an economy is sufficiently high. Thus, it suggests that as incomes continue to rise beyond a certain level, the (extended) life-cycle hypothesis will likely be a better and better approximation for explaining most people's saving behavior. This result also provides an explanation for the decline of the saving rates in the U.S. and other developed countries.

DOI

10.1007/PL00004111

Print ISSN

09382259

E-ISSN

14320479

Publisher Statement

Copyright © Springer-Verlag 2001

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Full-text Version

Publisher’s Version

Recommended Citation

Fan, C. S. (2001). A model of intergenerational transfers. Economic Theory, 17(2), 399-418. doi: 10.1007/PL00004111