Rotten spouses, family transfers, and public goods

Abstract

We show that once interfamily exchanges are considered, Becker’s rotten kids mechanism has some remarkable, hitherto unnoticed, implications. Specifically, Cornes and Silva’s (J Polit Econ 107(5):1034–1040, 1999) result of efficiency in the contribution game amongst siblings extends to a setting where the contributors (spouses) belong to different families. More strikingly still, the mechanism may also have dramatic redistributive implications. In particular, we show that the rotten kids mechanism combined with a contribution game to a household public good may lead to an astonishing equalization of consumptions between and within families, even when their parents’ wealth levels differ. The most striking results obtain when wages are equal and when parents’ initial wealth levels are not too different. For very large wealth differences, the mechanism must be supplemented by a (mandatory) transfer that brings them back into the relevant range. When wages differ but are similar, the outcome will be near efficient (and near egalitarian).