Working Paper: NBER ID: w7518
Authors: Antonio Rangel
Abstract: This paper develops a theory of intergenerational exchange for generations that are either selfish or have non-dynastic altruism. The main building blocks of the theory are forward and backward intergenerational goods (FIGs and BIGs) and the relationship between them. A FIG is a transfer from present to future generations, like parental investments in education and the preservation of the environment. A BIG is a transfer from future to present generations, like pay-as -you-go social security or taking care of elderly parents. We show that there is a fundamental difference between BIGs and FIGs. BIGs generating a positive surplus are self-sustainable, but FIGs never are. However, even with selfish generations, optimal investment in future generations can take place if the equilibrium social norm links BIGs and FIGs. The tools developed here can be used to understand a wide class of intergenerational problems, from the political economy of environmental treaties to the economics of seniority institutions. Two applications are developed in the paper: (1) the political economy of intergenerational public expenditures, and (2) investment in children within the family.
Keywords: No keywords provided
JEL Codes: H0; H3; H4; I2; D1; D7; C7; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bigs (C55) | optimal investment in future generations (D15) |
| figs (Y60) | no optimal investment in future generations (D15) |
| social norm linking bigs and figs (Z13) | optimal investment in future generations (D15) |
| selfish generations (D64) | optimal investment in future generations (D15) |