Capital Accumulation and the Characteristics of Private Inter-generational Transfers

Many recent studies of the process of family accumulation in general and household response to social security in particular have revealed growing dissatisfaction with the life-cycle theory of saving (see, for example, Barro, 1978; Kotlikoff, 1979; Darby, 1979; Kotlikoff and Summers, 1981; Kurz, 1981; Blinder, Gordon and Wise, 1981; David and Menchik, 1982; Leimer and Lesnoy, 1982). An alternative to the life-cycle hypothesis is expressed by defining the preference of each family over its own consumption as well as the welfare of the generations that follow. Thus, each family consists of an infinite chain of generations who have interdependent preferences, and for this reason we shall call it the Inter-Generational Hypothesis. It was recently used by Barro (1974, 1978) to attack the conclusions of the life-cycle hypothesis. Our purpose in this paper is to start the long road of studying the structure of the private inter-generational transfer system with the aim of providing additional tests of the two competing hypotheses.