Intergenerational altruism with future bias

Francisco Gonzalez, Itziar Lazkano, Sjak Smulders

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We show that standard preferences of altruistic overlapping generations exhibit future bias, which involves preference reversals associated with increasing impatience. This underlies a conflict of interest between successive generations. We explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time. We argue that future bias creates incentives to legislate and sustain a pay-as-you-go pension system, which every government views as a self-enforcing commitment mechanism to increase future old-age transfers.
Original languageEnglish
Pages (from-to)436-454
JournalJournal of Economic Theory
Volume178
DOIs
Publication statusPublished - Nov 2018

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Keywords

  • Intergenerational altruism
  • Time inconsistency
  • beta-delta discounting
  • Overlapping generations
  • Pay-as-you-go pensions

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