Intergenerational Altruism and Social Welfare: a Critique of the Dynastic Model

29 Pages Posted: 19 Jul 2004

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1987

Abstract

In this paper, I show that, under relatively weak conditions, dynastic equilibria are never welfare optima. If a social planner sets policy to maximize a social welfare function, then, except in extreme cases where the planner cares only about a single generation, successive generations will never be linked through altruistically motivated transfers. This suggests that the dynastic model is unsuitable for normative analysis, and, to the extent governments actually behave in this manner, the model is also inappropriate for positive analysis. In addition, I show that, except in a few special cases, the planner's preferences are dynamically inconsistent. If the planner can successfully resolve this inconsistency, then the central result is somewhat modified.

Suggested Citation

Bernheim, B. Douglas, Intergenerational Altruism and Social Welfare: a Critique of the Dynastic Model (June 1987). NBER Working Paper No. w2288. Available at SSRN: https://ssrn.com/abstract=347058

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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