Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange

Posted: 18 Jan 2000

See all articles by Antonio Rangel

Antonio Rangel

California Institute of Technology

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Abstract

This papers develops a theory of intergenerational exchange for generations that are either selfish or have non-dynastic altruism. The main building blocks of the theory are forward and backward intergenerational goods (FIGs and BIGs) and the relationship between them. A FIG is a transfer from present to future generations, like parental investments in education and the preservation of the environment. A BIG is a transfer from future to present generations, like pay-as-you-go social security or taking care of elderly parents. We show that there is a fundamental difference between BIGs and FIGs. BIGs generating a positive surplus are self-sustainable, but FIGs never are. However, even with selfish generations, optimal investment in future generations can take place if the equilibrium social norm links BIGs and FIGs. The tools developed here can be used to understand a wide class of intergenerational problems, from the political economy of environmental treaties to the economics of seniority institutions. Two applications are developed in the paper: (1) the political economy of intergenerational public expenditures, and (2) investment in children within the family.

JEL Classification: H0, H3, H4, I2, D1, D7, C7, E6

Suggested Citation

Rangel, Antonio, Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange. Available at SSRN: https://ssrn.com/abstract=202472 or http://dx.doi.org/10.2139/ssrn.202472

Antonio Rangel (Contact Author)

California Institute of Technology ( email )

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