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
Publisher
Springer
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
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Fan, C. S. (2001). A model of intergenerational transfers. Economic Theory, 17(2), 399-418. doi: 10.1007/PL00004111