Two-sided altruism, social insurance and elderly consumption

The purpose of this project is to examine the interaction of social insurance pro- grams and family support for financing the elderly's consumption in an environment when agents exhibit two-sided altruism.;In Chapter 1, we use an extended two-sided setup to explain why in the U.S. inter vivos financial transfers from adult children to parents are so limited, given the fact indicated by recent research work that there could be a strong altruistic link running from children to parents in the U.S. We extend Laitner's (1990) framework by allowing father and son to maximize a combined utility function with separated budget constraints, and adding uncertain medical risks and a mean-tested public transfer program. The experiments show that crowding out of financial transfers from adult children to parents by public transfer programs is possible when the father is in bad health. However, in households where the father is in good health, public transfer programs actually could induce more private transfers.;In Chapter 2, we use AHEAD and HRS data on financial and time transfers from children to parents to study the empirical evidence of the potential crowding out of private transfers by public transfers. While we find that direct government transfers such as SSI have significant crowding out effects on financial transfers, our findings on whether Medicaid crowds out private financial transfers are ambiguous. Direct crowding out by public transfers on time transfers is not found, but the results are consistent with indirect crowding out.;In Chapter 3, we consider the effect of degree of altruism on the elderly's consumption by comparing perfect altruism to no altruism. Specifically, we apply a two-sided altruism versus a one-sided altruism framework to capture the implication of different household structures which imply different degrees of altruism in advanced and less developed economies. In a steady state, the economy with two-sided altruism generates a flatter consumption profile than the economy with one-sided altruism, which is consistent with the empirical evidence found in Lee, Lee and Mason (2006).