Family Ties, Incentives and Development: A Model of Coerced Altruism

SSE/EFI Working Paper Series in Economics and Finance No. 681

Carleton Economics Paper No. CEP 07-10

32 Pages Posted: 11 Dec 2007

See all articles by Ingela Alger

Ingela Alger

University of Toulouse 1 - Toulouse School of Economics (TSE); CNRS UMR 5314 TSE-R; Institute for Advanced Study in Toulouse

Jorgen W. Weibull

Stockholm School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 24, 2007

Abstract

We analyze the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. We model families as pairs of siblings. Each sibling exerts effort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a specified amount of this output with his sibling, if the latter's output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. We compare such informal family insurance with actuarially fair formal insurance.

We show that coerced family altruism reduces individual efforts in equilibrium. However, individuals always benefit ex ante from living in families with coerced altruism, as compared with living in autarky. We show that a certain degree of coerced family altruism is robust as a social norm in a society of selfish individuals. Finally, we show that if family members are sufficiently altruistic to each other, then informal family insurance by way of coerced altruism may outperform actuarially fair insurance programs.

Keywords: altruism, coerced altruism, family ties, insurance, moral hazard

JEL Classification: D02, D13

Suggested Citation

Alger, Ingela and Weibull, Jorgen W., Family Ties, Incentives and Development: A Model of Coerced Altruism (October 24, 2007). SSE/EFI Working Paper Series in Economics and Finance No. 681, Carleton Economics Paper No. CEP 07-10, Available at SSRN: https://ssrn.com/abstract=1055281 or http://dx.doi.org/10.2139/ssrn.1055281

Ingela Alger (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

CNRS UMR 5314 TSE-R ( email )

France

Institute for Advanced Study in Toulouse ( email )

31015 Toulouse, Cedex 6
France

Jorgen W. Weibull

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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