Optimal contracting with dynastic altruism: Family size and per capita consumption

Roozbeh Hosseini, Larry E. Jones, Ali Shourideh

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

We use a Barro-Becker model of endogenous fertility, in which parents are subject to idiosyncratic shocks that are private information (either to labor productivity or taste for leisure), to study the efficient degree of consumption inequality in the long run. The planner uses the trade-off between family size and future consumption and leisure, to provide incentives for workers to reveal their shocks. We show that in this environment, the optimal dynamic contract no longer features immiseration in consumption. We also discuss the implications of the model on the long run properties of family size in the optimal contract and show that the long run trend in dynasty size can be either positive or negative depending on parameters.

Original languageEnglish (US)
Pages (from-to)1806-1840
Number of pages35
JournalJournal of Economic Theory
Volume148
Issue number5
DOIs
StatePublished - Sep 1 2013

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Keywords

  • Altruism
  • Endogenous fertility
  • Long run inequality
  • Private information
  • Risk sharing

ASJC Scopus subject areas

  • Economics and Econometrics

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