Paternalistic Preferences, Interpersonal Transfers and Reciprocity

Abstract

Anthropologists since Bronislaw Malinowski [20] and Marcel Mauss [21] have observed that reciprocity is the primary defining characteristic of voluntary interpersonal transfers. While this perspective developed from observation of behaviors in exotic societies (e.g., the kula ring of Eastern New Guinea and the potlatch of the Kwakiutl tribe of the Pacific Northwest), contemporary observers find reciprocity to be an important feature of interpersonal transfers in modern societies' as well [7; 13; 14]. Sociologists such as Alvin Gouldner [17] and Claude Levi-Strauss [19] have given reciprocity the status of a social norm. Members of society are held to have a three-part obligation: to give gifts; to accept gifts; and to respond to a gift with a gift in return. In this literature, gift exchange serves to establish, perpetuate and define social relationships. Robert Sugden [25] suggests that social conventions and norms enable people to coordinate their behavior in the face of multiple Nash equilibria, where there is no uniquely rational choice and hence rationality alone is insufficient for decision-making. The purpose of this note is to demonstrate, by means of an example, how the norm of reciprocity can play this role in supporting transfers as the equilibrium of non-cooperative behavior. The example is based on the paternalistic preferences model that Robert Pollak [22] proposed as an extension of Gary Becker's [6] model of altruism in the family. Where Becker assumes that children's utility levels enter as arguments in their parents' utility function, Pollak assumes that in addition children's levels of consumption of certain goods directly affect parents' utility.2 Thus, Becker assumes that parental utility has the form UP(CP, Ui(Ci), Uj(CJ)), where UP, Ui, and Uj denote the utility functions of the parent and children i and j respectively, and CP, Ci and C' denote their respective consumption vectors. Pollak assumes instead that parental utility is given by UP (CP, Ci, Cj, Ui(Ci), Uj (C)), where the derivatives of UP with respect to the various elements of C' and Cj differ. This explains why intergenerational transfers within families are often tied to the children's consumption of particular goods or even take the form of in-kind transfers to the