Economic Theory

, Volume 17, Issue 2, pp 399–418 | Cite as

A model of intergenerational transfers

  • Chengze Simon Fan
Research Articles

Summary.

Extending some existing literature, this paper formalizes the idea that intergenerational transfers occur because people care about the “characteristics” (i.e quantity and quality) of their offspring, rather than their children's welfare per se or consumption. The model analyzes this transfer motive in an infinite Markovian game framework, and it proves the existence of a stationary Markov Perfect equilibrium. Further, the analysis shows that under certain conditions, the proposed transfer motive will diminish, as the average income of an economy is sufficiently high. Thus, it suggests that as incomes continue to rise beyond a certain level, the (extended) life-cycle hypothesis will likely be a better and better approximation for explaining most people's saving behavior. This result also provides an explanation for the decline of the saving rates in the U.S. and other developed countries.

Keywords and Phrases: Intergenerational transfer, Markov perfect equilibrium, Life-cycle hypothesis. 
JEL Classification Numbers: E21, C73, D10. 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Copyright information

© Springer-Verlag Berlin Heidelberg 2001

Authors and Affiliations

  • Chengze Simon Fan
    • 1
  1. 1.Department of Economics, Lingnan University, Tuen Mun, HONG KONG (e-mail: fansimon@ln.edu.hk) HK

Personalised recommendations