Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98971
Authors: 
Cremer, Helmuth
Roeder, Kerstin
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Papers 8264
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.
Subjects: 
rotten kids
altruism
education
long-term care
subgame perfect equilibrium
overlapping generations
JEL: 
D1
D7
D9
Document Type: 
Working Paper

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