Intergenerational Altruism Research Articles

Joint Life Annuities and Annuity Demand by Married Couples

ABSTRACT This article summarizes the range of joint-life products that are currently available to married couples, and it explores the potential utility gain that such couples receive from access to actuarially fair markets. It is more difficult to estimate this utility gain for couples than for individuals because a couple's value of annuitization will depend in part on the survivor benefits that are available after one spouse has died but while the other is still alive. Valuing joint and survivor annuities also requires recognition of the potentially important interactions between the members of a married couple, such as joint consumption, interdependent utilities, and correlated mortality rates. This article considers each of these issues. It develops an valuation model for married couples and it estimates their annuity equivalent wealth, the amount of wealth that couples would need in the absence of actuarially fair markets in order to achieve the same utility level that they rece ive when such markets are available. The utility gain from annuitization is smaller for couples than for single individuals. Since most potential buyers are married, this finding may help to explain the limited size of the market for single premium annuities in the United States. INTRODUCTION Annuities play an important role in the standard theory of consumer choice when life length is uncertain. Yaari (1965) showed that an individual with a fixed stock of resources and an uncertain lifetime should purchase an contract to insure against the risk of outliving his resources. More recent work, such as Mitchell, Poterba, Warshawsky, and Brown (1999) (hereafter MPWB), finds substantial gains to annuitization for individual life-cycle consumers. Typical results suggest that a 65-year-old man who does not have access to an actuarially fair market would be willing to forgo roughly one-third of his wealth if by doing so he could purchase an actuarially fair with his remaining wealth. In spite of Yaari's (1965) insight, a number of studies have observed that the market for individual contracts in the United States is very small. Standard explanations for the limited flow of new purchases are adverse selection in the market, individual bequest motives, and the presence of other annuitized resources. Several empirical studies, including Friedman and Warshawsky (1988, 1990) and MPWB (1999), have explored the extent of adverse selection. Numerous other studies surveyed in Laitner (1997) and (more briefly) in Altonji, Hayashi, and Kotlikoff (1997) and Laitner and Juster (1996) have focused on intergenerational altruism as a potential explanation for limited demand. Simple altruistic models do not appear to provide a satisfactory explanation for observed patterns of intergenerational transfers. Auerbach, Kotlikoff, and Well (1992) show that when Social Security benefits, private defined benefit pension plan payments, and Medicare benefits are added together, more than half of the resources of the current elderly in the United States take the form of life-contingent payouts. Thus many households are already annuitized. This may also explain the limited demand for additional private annuities. The functioning of markets has recently attracted attention as part of the global policy debate on individual accounts Social Security systems. A central design issue in such systems concerns the way a retiree would spread accumulated resources over his or her remaining lifetime, or his or her lifetime and that of his or her spouse. Private annuities offer one way of spreading such resources; mandatory government-provided annuities are another. Although the treatment of married couples is an important issue in retirement income security, virtually all of the previous research on annuities has focused on individuals rather than couples as decision-making units. …

Who Should Pay for the Kids?

This article emphasizes collective struggles over the distribution of the costs of children. Because the production of children's capabilities creates a public good that cannot be priced in the market, individuals can free ride on the efforts of parents in general and mothers in particular. We need to redesign the social contract in ways that encourage more sustainable forms of intergenerational altruism and reciprocity.

Fiscal Policy when Individuals Differ with Regard to Altruism and Labor Supply

This paper studies the incidence of tax‐transfer policy in a growth model wherein individuals differ according to their level of intergenerational altruism and have an endogenous labor supply. The main result is that public debt is neutral at the macro level but redistributes resources from nonaltruists to altruists. Capital income taxation can hurt the nonaltruists who do not have any wealth more than it hurts the altruists who own all of it. Whether or not the altruists supply a positive amount of labor makes a big difference as to the incidence of alternative tax transfer policies.

A Loveless Economy? Intergenerational Altruism and the Marriage Market in a Tuscan Town, 1415–1436

This article examines the role of dowries and highlights the variables that affected the size of dowries in fifteenth-century Tuscany. The estimation, which matches the households found in the marriage contrascts with the corresponding households in the FlorentineCatastoof 1427, offers support for the present net value hypothesis and for the altruism model. Results indicate a positive correlation between a bride's dowry size and her age when used as peoxy for her contribution to the marital household. Parents also provided their daughters with larger dowries when they married “down” into relatively less wealthy or socially prominent households.

Discounting and the Economic Costs of Altruism in Greenhouse Gas Abatement

This paper carries out a numerical thought experiment on greenhouse gas abatement. The main results can be summarized as follows: first, a high degree of intergenerational altruism might support 'sustainable' atmospheric carbon concentration, but imposes high welfare losses on current generations; and second, if agents realize that greenhouse policy is an alternative to investing into physical capital, then even without intergenerational altruism a Pareto-efficient internalization of the external effect of climate change will stabilize the atmospheric carbon concentration at ecologically sustainable levels, but at significantly lower economic costs. Copyright 1998 by WWZ and Helbing & Lichtenhahn Verlag AG

Discounting and the Economic Costs of Altruism in Greenhouse Gas Abatement

This paper carries out a numerical thought experiment on greenhouse gas abatement. The main results can be summarized as follows: first, a high degree of intergenerational altruism might support 'sustainable' atmospheric carbon concentration, but imposes high welfare losses on current generations; and second, if agents realize that greenhouse policy is an alternative to investing into physical capital, then even without intergenerational altruism a Pareto-efficient internalization of the external effect of climate change will stabilize the atmospheric carbon concentration at ecologically sustainable levels, but at significantly lower economic costs. Copyright 1998 by WWZ and Helbing & Lichtenhahn Verlag AG

Does the choice of consumption measure matter? An application to the permanent-income hypothesis

Food consumption in the Panel Study of Income Dynamics is used as a proxy for total consumption in many applications in economics, including tests of the permanent-income hypothesis, tests of separability between consumption and leisure, and tests of intergenerational altruism. Food, however, explains only a small fraction of the variation in total consumption. I propose a measure of composite consumption based on predicted wealth and compare it both to food consumption and to Skinner's (1987) measure of predicted consumption in a test of the permanent-income hypothesis. Using a log-linear intertemporal consumption function I find that food does not reject the permanent-income hypothesis but both Skinner's predicted consumption and the composite measure proposed here to reject the hypothesis.

Depreciation and intergenerational altruism in the private provision of public goods

The static model of the private provision of public goods is refuted by empirical and experimental evidence which shows that contributions are above the levels predicted by the theory. The model is reconsidered here in an intertemporal framework that allows the formation of a stock of public good over time and admits intergenerational altruism into preferences. Both of these factors affect the level of private provision. An intertemporal version of the Samuelson rule is derived and it is shown that, for some parameter values, the provision level determined by this is matched by private provision. For other parameter values, it is shown how a system of taxation can achieve the optimum.

Rise and fall of the Japanese saving rate: The role of social security and intra-family transfers

Alternative models of household saving behaviour are tested using Japanese post-war time series data. Basic life-cycle theory and models based on some form of intergenerational altruism are rejected in favour of an extended life-cycle model based on the assumption of strategic self-interest. The early rise and subsequent fall of the saving rate is explained by the interaction of state, capital market and extended family as providers of old-age social security.

Overlapping Generations or Infinitely-Lived Agents: Intergenerational Altruism and the Economics of Global Warming

Do we need an overlapping generations model for the economics of global warming? To answer this question, an infinitely-lived agent (ILA) approach and an overlapping generations (OLG) model are contrasted. ILA and OLG can be viewed as polar representations of intergenerational altruism. With ILA an immortal agent acts through his investment/savings decisions as trustee on the behalf of the future generations. With OLG, agents need not behave altruistic. They simply save during working years and dissave completely during retirement. Nevertheless, ILA and OLG must not differ in their implication for greenhouse policy. Greenhouse gas abatement is a straightforward alternative to physical capital formation and, even without altruism, each age cohort has an incentive to provide current abatement in order to reduce future damages attributable to climate change. Indeed, under reasonable assumptions and parameter values, our simulations reveal such an invariance result. Provided carbon taxes are the only policy tool and tax revenues are recycled through socially mandated rules, projections of economic growth, climate change and energy consumption are only insignificantly affected by the choice of approach.

When) is Consumption Taxation Equivalent to Wage Taxation ?

This article deals with the question of the equivalence between consumption taxationand wage income taxation. It is argued that when individuals behave according to strict life-cycle reasons, these taxes are not equivalent in either of the standard senses. Although a balanced-budget increase in the wage tax unambiguously de creases the steady-state capital-labor ratio, a balanced-budget increase in the consumption tax may have any impact on long-run capital accumulation. A differential incidence shift from wage to consumption taxation is associated with a higher value of the steady-state capital-labor ratio and increases welfare when the starting point is a dynamically efficient steady state. However, in the presence of intergen erational altruism, consumption and wage taxes are structurally equivalent (i.e., both in balanced-budget terms and under a differential incidence approach). An increase in any of them entails no effect on the steady-state capital-labor ratio and welfare level, with the only consequence of transferring resources away from the private sector and to the government.

Altruism and Migration: Evidence from Korea and the United States

Previous articleNext article No AccessAltruism and Migration: Evidence from Korea and the United StatesMoonjoong TchaMoonjoong Tcha Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Economic Development and Cultural Change Volume 44, Number 4Jul., 1996 Article DOIhttps://doi.org/10.1086/452248 Views: 6Total views on this site Citations: 9Citations are reported from Crossref Copyright 1996 The University of ChicagoPDF download Crossref reports the following articles citing this article:Eli Berman, Zaur Rzakhanov Fertility, migration, and altruism, Journal of Demographic Economics 86, no.33 (Sep 2020): 367–402.https://doi.org/10.1017/dem.2020.18John Gardner Intergenerational altruism in the migration decision calculus: evidence from the African American Great Migration, Journal of Population Economics 33, no.11 (Jun 2019): 115–154.https://doi.org/10.1007/s00148-019-00738-5Nicholas Wilson Altruism in preventive health behavior: At-scale evidence from the HIV/AIDS pandemic, Economics & Human Biology 30 (Sep 2018): 119–129.https://doi.org/10.1016/j.ehb.2018.05.004Emmanuel Thibault Is GDP a Relevant Social Welfare Indicator? A Savers-Spenders Theory Approach, The Japanese Economic Review 68, no.33 (Oct 2016): 333–351.https://doi.org/10.1111/jere.12116Debasis Chakraborty, Pravat Kumar Kuri The Household Level Determinants in the Choice and Level of Migration, Environment and Urbanization ASIA 8, no.11 (Mar 2017): 94–104.https://doi.org/10.1177/0975425316683864Yi-Lin Chiang, Emily Hannum, Grace Kao It’s Not Just About the Money: Gender and Youth Migration from Rural China, Chinese Sociological Review 47, no.22 (Mar 2015): 177–201.https://doi.org/10.1080/21620555.2014.990328Akira Shimada Migration decisions, expected remittances, and altruism, International Review of Economics 59, no.33 (Oct 2011): 285–296.https://doi.org/10.1007/s12232-011-0137-6Akira Shimada The Role of Altruism in Sending and Spending Remittances, Journal of East Asian Economic Integration 15, no.22 (Jun 2011): 61–82.https://doi.org/10.11644/KIEP.JEAI.2011.15.2.230J. Edward Taylor, Philip L. Martin Chapter 9 Human capital: Migration and rural population change, (Jan 2001): 457–511.https://doi.org/10.1016/S1574-0072(01)10012-5

Altruism, Conflict, and the Migration Decision

This paper uses a dynastic model with intergenerational altruism to analyse rural-urban migration during times of high unemployment rates and low expected income, and to explain the higher mobility of young generations. Different dynastic utilities between generations lead to conflicts between generations on migration decisions, and predict the higher mobility of the young generation. In addition, the model explores how the degree of altruism affects the migration decision.

ON THE INFLUENCE OF PAY-AS-YOU-GO FINANCED PENSION SYSTEMS ON SAVING: THE ROLE OF STABILITY

Based on a traditional overlapping generations model without intergenerational altruism and with an exogenously given labor supply, it is shown that, contrary to opposite claims in the literature, neither the short-run nor the long-run effects of an increase in the contributions to a pay-as-you-go old-age security system on the aggregate saving ratio are unambiguously negative. Depending on the nature of the respective equilibria (Marshallian, Walrasian, with or without oscillations) the short-run and the long-run effect may be positive or negative. Exact conditions are specified under which these different effects occur. Copyright 1994 by Scottish Economic Society.

Long-run equilibria with borrowing constraints and altruism

This paper adapts a nonstochastic overlapping generations model to include liquidity constraints and intergenerational altruism. Existing work indicates the importance of both but often considers them separately. This paper studies their interactions. First, it shows that they tend to conflict—the model only admits stationary equilibria with dynastic wealth accumulation but no binding liquidity constraints, or wity binding constraints but no dynastic accumulation. Second, it examines the latter type of equilibrium closely. If liquidity constraints bind, quantitative examples imply that consequent utility losses may be small and that economywide wealth accumulation tends to be unrealistically low.

Children and pensions.

"Recent economic explanations of changes in fertility behaviour have focussed on the effects of labour-market-related incentives. The present paper draws attention to another set of incentives, those connected with the transfer of resources over time. The theoretical implications of intergenerational altruism as a possible motive for having children and making transfers to them are considered, and contrasted with those arising from the competing hypothesis that such actions are motivated by old-age-security considerations. From a comparison of these theoretical predictions with the findings of a number of empirical studies, it would appear that self-interested concern for one's old age, rather than any great love for future members of one's dynasty, is or has been so far the dominant force driving fertility and intergenerational transfers worldwide."

Utility functionals with nonpaternalistic intergenerational altruism: The case where altruism extends to many generations

The paper considers utility functinals which embody nonpaternalistic intergenerational altruism so that each generation's utility level depends not only on its own consumption but also on other (possibly infinitely many) generations' utility levels. Two concepts of utility functionals are proposed; they are based on the supposition either that people regard dead ancestors' utility levels as givens or that, in evaluating present and future consumptions, people consider how the ancestors would respond if they were alive. Unique existence of such functionals is proved and some properties analyzed under a condition which basically says that the degrees of altruism are not excessive.

Life cycle savings and consumption constraints: theory, empirical evidence, and fiscal implications.

"Recent tests of both the pure and the extended life cycle hypothesis have generated inconclusive results on the life cycle behavior of the elderly. We extend the life cycle model by introducing a constraint on the physical consumption opportunities of the elderly which, if binding, imposes a consumption trajectory declining in age. This explains much of the received evidence on the elderly's consumption and savings behavior, in particular declining consumption, and increasing savings and wealth with increasing age. Our analysis of [Federal Republic of Germany] data gives additional support to our theory. We finally draw the implications of the theory on the incidence of consumption and income (wealth) taxes, and on the recent (inconclusive) tests of intergenerational altruism."

NON-NEUTRALITY OF DEBT WITH ENDOGENOUS FERTILITY

this fact for the analysis of government policies involving intergenerational transfers. In particular, we investigate the Barro (1974) neutrality proposition on government debt, and the closely related question of the impact of an unfunded social security programme, in an economy with endogenous fertility. This exercise is useful for several reasons. First, underfunded social security programmes and substantial government borrowing are characteristic of many developed countries. The theoretical analysis below shows that such policies can be predicted (in a world of intergenerational altruism) to lower fertility. It may be necessary, therefore, to take these policies into account in analyzing the determinants of fertility in developed countries. Second, many authors have advocated the introduction or expansion of social security programmes as policies to curtail fertility in LDCs. The results of this paper provide a possible rationale for such arguments, although they also indicate that not all social security programs will have such effects. Third, our analysis demonstrates that the effects of government borrowing and social security on economic growth depend on the response of fertility to these policies. In analyses in which fertility is exogenously determined, all of the important dynamic consequences of a government policy are known once one can determine how the policy affects national savings: generally, an increase in national savings raises the capital/labour ratio, output, output per head, and the wage rate, while reducing the return to capital. In an economy with endogenous fertility, by contrast, it is possible for variables measured in total terms (e.g., output) to move in a direction opposite to the corresponding variables that represent per head magnitudes (e.g., output per head). As is shown below for a simple special case, it is quite possible for an increase in debt to cause

Utility functionals with nonpaternalistic intergenerational altruism

The purpose of the paper is twofold. The first purpose is to investigate the conditions for the existence and uniqueness of stationary utility functionals which embody a two-way non-paternalistic intergenerational altruism. The specific forms of the utility functionals are also derived in the linear case. The second purpose is to investigate whether these functionals can generate consistently optimum distribution programs. Using a simple overlapping generations framework, it is shown that the answer to this question is negative as long as the younger generation's utility is given any weight in each period's objective functional.