Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235001 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
Discussion Paper Series No. 678
Publisher: 
University of Heidelberg, Department of Economics, Heidelberg
Abstract: 
Decisions with long-term consequences require comparing utility derived from present consumption to future welfare. But can we infer socially relevant intertemporal preferences from saving behavior? I allow for a decomposition of the present generation's preference for the next generation into its dynastic and crossdynastic counterparts, in the form of welfare weights on the next generation in the own dynasty and other dynasties. Welfare weights on other dynasties can be motivated by a concern for sustainability, or if descendants may move or marry outside the dynasty. With such cross-dynastic intergenerational altruism, savings for one's own descendants benefit present members of other dynasties, giving rise to preference externalities. I find that socially relevant intertemporal preferences may not be inferred from saving behavior if there is cross-dynastic intergenerational altruism. I also show that the external effect of present saving decreases over time. This means that intertemporal preferences inferred from saving behavior are time-inconsistent, unless cross-dynastic intergenerational altruism is accounted for.
Subjects: 
Intergenerational altruism
social discounting
time-inconsistency
declining discount rates
generalized consumption Euler equations
interdependent utility
isolation paradox
JEL: 
D64
D71
H43
Q01
Q54
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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