The generational bargain

This paper builds on the notion of a bargain or contract across the generations. It argues that the idea of a generational bargain is helpful when thinking about a range of problems in economic and social policy, from pension reform to the extended family. The standard bargain (usually implicit) is that the working generation makes transfers of human capital to the young and consumption to the old on the understanding that other generations will behave in a similar way. Thus there are at least three generations involved in the process. The paper examines the roles of altruism and of self‐interest in generational transfers and the stability of the bargain against “bad” behaviour by particular generations and against fractures in the generational cluster.