Intergenerational exchange mobility and economic welfare

The concepts of exchange and structural mobility are introduced and their relationship with the notion of Equality of Opportunity discussed. It is then shown that exchange mobility can have an impact on social welfare when the utility of any one generation is dependent on the consumption levels of overlapping generations. Whether such consumption interrelationships imply a preference for mobility or the reverse depends on whether the marginal utility of current consumption is raised or lowered by an increase in the consumption level of the associated generation. The rest of this paper examines these two cases in the context of a simple two-class family model. The analysis is concerned with the description of the optimal intergenerational behaviour within this framework. In order to be able to say anything substantial, however, it is necessary to impose some restrictions on the structure of the utility function. One restriction which has some appeal and which yields plausible patterns of optimal policy is that intergenerational links through the utility function be not too strong, in a sense that is made specific in the paper. Imposing this condition, one can show how intra-generational equity is affected both by intergenerational considerations and by the inherited past. Where intragenerational transfers involve efficiency losses, a simple tax model is examined. The circumstances under which, starting with no taxes, the tax rates converge are worked out in both the cases where the utility function has a pro as well as an anti-mobility bias.