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Intergenerational Intermediation and Altruistic Preferences

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  • Benjamin Eden

    (Department of Economics, Vanderbilt University)

Abstract

The paper analyzes the intermediation role of government under the assumption that it has an advantage over the private sector in collecting uncollateralized loan payments. It isshown that a government loan program may improve the welfare of all generations (including the current old generation) if agents care about future generations in the time inconsistent manner originally proposed by Phelps and Pollak (1968). Numerical examples suggest that the welfare gains from intervention may be quite large and depends on the degree of altruism as defined by Phelps and Pollak. The welfare gains are large when agents are relatively �egoistic� because in this case the time inconsistency problem is more severe and there is more room for intervention.

Suggested Citation

  • Benjamin Eden, 2011. "Intergenerational Intermediation and Altruistic Preferences," Vanderbilt University Department of Economics Working Papers 1108, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:1108
    as

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    File URL: http://www.accessecon.com/pubs/VUECON/vu11-w08.pdf
    File Function: First version, August 2011
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    References listed on IDEAS

    as
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    3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    4. E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(2), pages 185-199.
    5. Benassy, Jean-Pascal, 2011. "Macroeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195387711.
    6. Aiyagari, S. Rao & Greenwood, Jeremy & Seshadri, Ananth, 2002. "Efficient Investment in Children," Journal of Economic Theory, Elsevier, vol. 102(2), pages 290-321, February.
    7. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    8. Amartya K. Sen, 1967. "Isolation, Assurance and the Social Rate of Discount," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 81(1), pages 112-124.
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    Cited by:

    1. Bejamin Eden, 2018. "Real Interest Policy And The Housing Cycle," Vanderbilt University Department of Economics Working Papers 18-00006, Vanderbilt University Department of Economics.

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    More about this item

    Keywords

    Intermediation; Inconsistent Altruistic Behavior; Investment in Children; Government Loan Program;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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