A closed-form solution to a model of two-sided, partial altruism

Abstract

This paper presents a closed-form characterization of the allocation of resources in an overlapping generations model of two-sided, partial altruism. Three assumptions are made: (i) parents and children play Markov strategies, (ii) utility takes the CRRA form, and (iii) the income of children is stochastic but proportional to the saving of parents. In families where children are rich relative to their parents, saving rates-measured as a function of the family's total resources-are higher than when children are poor relative to their parents. Income redistribution from the old to the young, therefore, leads to an increase in aggregate saving. © 2012 Cambridge University Press.