Paternal Altruism or Smart Parent Altruism?

Abstract:     
If the beneficiary of an altruist’s gift can be expected to use this gift efficiently, then a pure altruist (one who cares about the beneficiary’s utility level, but now how utility is obtained) should only give gifts of money. This is often interpreted to mean that any other type of gift is evidence of paternal altruism. However, it is known (Linbeck and Weibull (1998)) that altruism creates an incentive for inefficient consumption in a multi-period model. Working within this context, I demonstrate that it can be optimal for a pure altruist to give certain types of gifts in kind. For example, a gift in kind of education increases the beneficiary’s future income, which can prevent the type of strategic behaviour which leads to inefficiency in Linbeck and Weibull (1998).

Keywords: Altruism, Paternalism, Efficiency, Utility, Beneficiary, Money, Consumption, Strategic behaviour

JEL Classification: D64, D81, J12

working papers series