On the Economics of Intergenerational Control

Abstract

Intergenerational exchanges may have powerful effects on the long run growth of the economy in terms of both physical and human wealth accumulation per capita and of population growth. This discussion explores the choice structure underlying the relations between generations with particular attention directed to the interaction of intergenerational wealth flows and parental control of the activities of offspring. Key to the analysis is the treatment of families as collections of individuals with potentially strong interdependence of utilities but with distinct preferences and economic constraints. Parental control of offspring is an economic outcome subject to shifts in market opportunities and the volume and form of intergenerational wealth flows. This view of the family process opens up a wide range of problems to economic analysis including age of independence of offspring extent of child labor and pension value of offspring. In addition it recasts family decisions in such areas as schooling marriage and fertility in a potentially useful way. The 1st section discusses a formal model of family control and intergenerational consumption shares as a function of initial resource endowments and levels of altruism. A simple economy in which income is the only economic good is considered. The discussion then describes a more general model of the family allocation process which allows exchange as well as gift relationships among family members. A 2nd good labeled child services is introduced. It assumes that the younger generation holds property rights in this service flow. If the younger generation controls income as well as child services a gift or altruism process will occur. If the older generation controls income an exchange process within an altruistic framework will occur. A bargaining model of this family exchange is elaborated and implications for household structure are derived. Recognition that intergenerational transfers involve a complex mixture of gifts and exchanges induced by altruism and self-interest suggests that a variety of economic and family models may be recast. Macroeconomic models based on unidirectional intergenerational concepts may be usefully reconsidered in a broader framework. The models discussed also point the way to a more complete analysis of the system of family government and market.

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