Keywords: Intergenerational transfers, altruism, education
Abstract: This paper explores how altruistic parents structure transfer rules in response to potential
incentive problems and how the investment behavior of children is influenced by these transfer
policies. To investigate these issues, I develop a dynamic model of altruistic transfers in
which transfers can be tied to the purchase of human capital investment. Numerical solutions
are examined to provide insight into the predictions of the model for transfer behavior and
investment by family size. The dynamic framework developed in the paper is used to guide the
interpretation of data on transfers and education investment by children in the Health and
Retirement Survey. The data are consistent with the prediction of the model that children in
larger families invest more in education conditional on initial transfers.
Full paper (274 KB PDF)
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Last update: December 23, 2005