Government Transfers and the Samaritan's Dilemma in the Family

Abstract

This paper examines the effectiveness of government transfersin overcoming the Samaritan's dilemma in a family in which thechild saves an insufficient amount in order to induce largerbequests from the parent. The results are as follows. First,exogenous government transfers do not affect intergenerationalconsumption allocation if bequests are operative. Second,assuming that government transfers are chosen strategically,the government precommits to such a level of transfers fromthe parent to the child that bequests become inoperative, andthus rids the child of the incentive for undersaving. Thisengenders an efficient intertemporal allocation ofconsumption.