Private Income Transfers and Market Incentives

The paper introduces labour supply considerations and labour earnings uncertainty into a parent-child framework in the presence of 'merit goods'. I investigate the implications of various parental bequest rules on the effort decisions of the offspring, where the parent cannot perfectly obs...

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Bibliographic Details
Published in:Economica (London) 1998-11, Vol.65 (260), p.557-580
Main Author: Chami, Ralph
Format: Article
Language:English
Subjects:
Altruism
Asymmetric information
Bequests
Decision making
Economic models
Economic motivation
Empirical evidence
Inheritance
Insurance
Labor markets
Labor supply
Labour supply
Market income
Merit goods
Merit ratings
Moral hazard
Parents
Parents & parenting
Self-interest
Studies
Uncertainty
Work incentives
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Summary:The paper introduces labour supply considerations and labour earnings uncertainty into a parent-child framework in the presence of 'merit goods'. I investigate the implications of various parental bequest rules on the effort decisions of the offspring, where the parent cannot perfectly observe her child's market activities. The asymmetry in information and preferences gives rise to a moral hazard problem, and as a result the parent may not fully insure her child because the source of risk is not entirely exogenous. In this case, optimal parental transfers are shown to be state-contingent. Moreover, the child's effort is higher in the case with a merit good and parental transfers than in the case without a merit good.
ISSN:0013-0427
1468-0335
DOI:10.1111/1468-0335.00146