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Altruism and beyond by Stark O.

By Stark O.

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Neither parent nor child can borrow from or lend to third parties. The child earns little today but considerably more tomorrow. The converse is true for the parent. An agreement wherein the parent lends to the child today and is repaid tomorrow would facilitate consumptionsmoothing and improve the wellbeing of both parties. The problem is that in a sequence of moves, the parent may not have the last (effective) word. If no bequest motive exists to enforce loan repayment, and each family member is selfinterested, how might the parent manipulate the child's preferences to improve the prospect of repayment?

5). 1 shifts to the left so that, for example, more initial allocations result in con¯ict-free transfers from father to son. 2 Fourth, suppose that a bumper crop (or, in another context, a public transfer) raises the quantity of corn 2 The result that the conflict range declines in F can be as  obtained   formally  CF CF À X Since follows. Let the conflict range be defined by D ˆ CS F CS S   1 À F S 1 1 1 1 À  F S Dˆ À ˆ À ˆ À 1 ‡  F S Y F 1 À S F 1 À S 1 À S F we have that dD 1 1 ˆ …À 2 ‡ S † ` 0X dF 1 À S F 20 Altruism, transfers, and wellbeing available for distribution and consumption.

Suppose the felicity functions are VF …CF † ˆ VS …CS † ˆ V…C† for all C b 0. If the father is not altruistic toward his son at all, that is, if F ˆ 0 and C is total corn available for consumption, the father chooses C to maximize VF …CF † ˆ V…C† subject to C C. His utility will be V…C†. Now, if the father has F ˆ 1 and S ˆ 0, and if the father's preferences are strictly convex, he will choose CF ˆ CS ˆ Ca2 and his utility will be V…Ca2† ‡ V…Ca2†. If preferences are strictly convex and V…0† !

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