A Strategic Altruism Model In Which Ricardian Equivalence Does Not Hold / Laurence J. Kotlikoff, Assaf Razin, Robert W. Rosenthal.

Format:

Book

Author/Creator:

Kotlikoff, Laurence J.

Contributor:

National Bureau of Economic Research.

Razin, Assaf.

Rosenthal, Robert W.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2699.

NBER working paper series no. w2699

Language:

English

Subjects (All):

Altruism--Economic aspects--Mathematical models.

Altruism.

Parent and child.

Families--Economic aspects.

Families.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1988.

Cambridge, Mass. : National Bureau of Economic Research, 1988.

Summary:

This article demonstrates that Ricardian Equivalence does not necessarily hold in models with altruistic transfers once one takes into account the strategic behavior of recipients as well as donors. To influence the final allocation of consumption in altruistic settings, potential recipients can threaten to refuse as well as accept transfers. We apply the Extended Nash Bargaining Solution to the problem of an altruistic parent and a possibly altruistic child. The parent and child first choose a threat point noncooperatively; this threat point then influences the final allocation of consumption through the standard Nash Bargaining Solution, While the potential recipient can refuse transfers from the potential donor, he cannot refuse transfers from the government. When the government redistributes between the parent and child, it changes their endowments and the equilibrium threats, and thus the final allocation of consumption. The feature of the cooperative model presented here that leads to the failure of Ricardian Equivalence may be characteristic of a wider class of cooperative and noncooperative altruism models. This feature is that noninterior strategic postures underlie interior transfer behavior and that these non- interior strategic postures are altered by government redistribution.

Notes:

Print version record

September 1988.