Three approaches to the economics of private and intergenerational giving

2017-01-13T03:16:40Z (GMT) by Nicholas, Aaron J
This dissertation consists of three different papers motivated and linked by the theme of private giving, both within the intergenerational context of the family, as well as amongst strangers. The first paper looks at the issue of remittances into and out of Australia. It utilises the first Longitudinal Survey of Immigrants to Australia in order to identify commonalities and differences between immigrants who bring remittances into Australia, and those who send them out. Because economists have primarily been concerned with flows from developed into developing countries, there could be a deterministic overstating of the net amount of remittances received by developing countries, as transfers into their countries were possibly preceded by equivalent (if not larger) transfers out of their country. The study finds that migrants with economically superior (e.g. wealth, education) pre-migration characteristics tend to increase the inflow of transfers. On the other hand, migrants who perform well post-migration (e.g. are quickly matched with jobs that utilise their qualifications) tend to increase the outflow of transfers. This suggests that Australia’s continued effort to channel migrants into areas of skill shortages may contribute positively to net outward flows and hence, indirect foreign aid. The second paper takes a step backwards and asks of the process of which remittance constitutes only a subset of – the intergenerational transmission of wealth. This suggests a close link between direct transfers (such as remittances), and the parental decision to invest in a child’s education. The availability of education investment as a viable alternative to direct monetary transfers to the child suggests that parents may favour spending on education to such an extent that children become overeducated; that is, parents are willing to spend on the education of their child even when a dollar spent on education yields less than a dollar increase in their child’s income. This is because while direct transfers to the child may increase the child’s demand for leisure, increasing a child’s education level may result in the opposite. The theoretical model in the second paper suggests that such a case is more prevalent in high income, high inequality countries. Different motives behind private transfers yield different predictions with regards to policy and environment changes. It is often unclear if there is any one definite motive at any one time, or a mix of several. The third paper takes a more conceptual note and asks if terms and labels such as altruism, trust, equality and reciprocity share a common underlying preference, such as a need to conform to social mores or to be morally upright. If so, what we consider to be separate motives such as altruism and reciprocity may in fact simply be different expressions of the same underlying motive subject to differing context. This in turn implies that these motives should be close substitutes to one another. Through the use of trust and dictator games in laboratory experiments, the results indicate that giving as a trustee to one individual is generally a poor substitute for giving as a dictator to another individual. However, when advantageous inequality between the dictator and recipient is increased, players may choose to use their dictator game contributions to a recipient as a reason to reduce their trust game transfers as trustee.