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A CLOSED-FORM SOLUTION TO A MODEL OF TWO-SIDED, PARTIAL ALTRUISM

Published online by Cambridge University Press:  26 March 2012

Ana Fernandes
Ana Fernandes*
Affiliation:
University of Bern
*
Address correspondence to: Ana Fernandes, Department of Economics, University of Bern, Schanzeneckstrasse 1, 3001 Bern, Switzerland; e-mail: ana.fernandes@vwi.unibe.ch.
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Abstract

This paper presents a closed-form characterization of the allocation of resources in an overlapping generations model of two-sided, partial altruism. Three assumptions are made: (i) parents and children play Markov strategies, (ii) utility takes the CRRA form, and (iii) the income of children is stochastic but proportional to the saving of parents. In families where children are rich relative to their parents, saving rates—measured as a function of the family's total resources—are higher than when children are poor relative to their parents. Income redistribution from the old to the young, therefore, leads to an increase in aggregate saving.

Keywords

Closed FormValue FunctionPartial AltruismMarkov Strategies
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 2 , April 2012 , pp. 230 - 239
Copyright
Copyright © Cambridge University Press 2012

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