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The old-age security hypothesis revisited

Authors
Journal
Journal of Development Economics
0304-3878
Publisher
Elsevier
Publication Date
Volume
41
Issue
1
Identifiers
DOI: 10.1016/0304-3878(93)90047-q

Abstract

Abstract Children's altruism toward parents is allowed in a two-overlapping-generations model with endogenous fertility. Parents raise children because, when retired, they expect gifts from their children who are essentially a capital good. Individuals' behavior between generations is examined by analyzing a Nash equilibrium, which is then compared with a social planner's optimal allocation. The pay-as-you-go public pension program is viewed as the optimal gifts from the optimal allocation when the latter is implemented. The effect on fertility of the introduction of a capital market is also analyzed. The validity of the old-age security hypothesis is shown to depend on the parameters of utility and cost functions.

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