Time or money? Induced altruism and provision of old-age care

Abstract

We study the interrelationship between parental decisions to educate a child and leave a bequest and adult child’s provision of old-age care through time and/or money in an environment where altruism may be induced in children and temporal care is critical for the well-being of the older population. When altruism is inherent between generations, we show that parents have the incentive to under-educate their children to elicit greater temporal care from them during adulthood. When altruism is not innate but can be induced, even financially wealthy individuals, who do not need monetary support from their children, invest in altruism-inducing activities. In a steady state, a threshold return from education ensures that parents educate their children, which, in turn, determines the provision of temporal care by educated children. Steady-state savings, bequests and the provision of monetary support are completely determined by the rate of interest. However, steady-state altruism-inducing investment depends on the type of old-age care a parent expects, contingent on her financial well-being. In an interesting extension, we show that when an education loan market exists, individuals who take a loan to educate their children sufficiently induce altruism to ensure that the educated children repay the education loan, as well as provide for a generous old-age consumption.