Cross-Dynastic Intergenerational Altruism

Abstract

I study whether saving behavior reveals socially relevant intertemporal preferences. To this end, I decompose the present generation’s preference for the next into its dynastic and cross-dynastic components in a model of saving. If people are concerned about the next generation as such, then they might assign welfare weights on other dynasties. With such cross-dynastic intergenerational altruism, saving for one’s descendants benefits present members of other dynasties. These preference externalities imply that socially relevant intertemporal preferences cannot be inferred from saving behavior. Numerically, I show that even \small" preferences for the next generation as such can lower the efficient discount rate by 20% to 40%, as compared to Nordhaus’ calibration.

Keywords: intergenerational altruism, social discounting, time-inconsistency, declining discount rates, generalized consumption Euler equations, interdependent utility, isolation paradox

JEL Classification: D640, D710, H430, Q010, Q540