Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56350
Authors: 
Alger, Ingela
Weibull, Jörgen W.
Year of Publication: 
2007
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 681
Abstract: 
We analyze the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. We model families as pairs of siblings. Each sibling exerts effort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a specified amount of this output with his sibling, if the latter's output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. We compare such informal family insurance with actuarially fair formal insurance. We show that coerced family altruism reduces individual efforts in equilibrium. However, individuals always benefit ex ante from living in families with coerced altruism, as compared with living in autarky. We show that a certain degree of coerced family altruism is robust as a social norm in a society of selfish individuals. Finally, we show that if family members are sufficiently altruistic to each other, then informal family insurance by way of coerced altruism may outperform actuarially fair insurance programs.
Subjects: 
altruism
coerced altruism
family ties
insurance
moral hazard
JEL: 
D02
D13
Document Type: 
Working Paper

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