Motives for Private Intergenerational Transfers

Abstract

Altruism is the most prominent among the motives for private intergenerational transfers and was first introduced by Barro [15] and Becker [16]. In order to understand, what is meant by altruism in economic theory take a look at the following stylized model. An individual lives for one period, say periodtduring which he earns a labor income w _t. There exists only one good in the present economy, the price of which is assumed to equal unity. During his life the individual consumes c_t units of the good and leaves the remaining resources as a bequestb to his offspring. The latter is born immediately before the parent dies and lives through periodt + 1. Since by means of the bequest resources can be transferred from one period to another it is assumed to bear interest at rate r. Also the child works during his life. Consequently, the child’s resources comprise the bequest, interest earned on the bequest, and labor income w _t+1. All of these resources are spent for consumption c _t+1