Self-enforcing exchange among generations: Implications for consumption and mobility

A three-generation OLG model with one-directional altruism and two-directional intra-family transfers is presented. Adults invest in their children's education and make transfers to their elderly parents. However, due to lack of altruism, adults with high earnings do not share consumption equally with their elderly parents but spend a larger share of their earnings on own consumption and on their children's education. This allows the model to be consistent with three empirical observations that are difficult to reconcile with traditional altruistic frameworks of intergenerational social interactions and mobility: (i) consumption is not perfectly shared between members of an extended family, (ii) consumption is not equally persistent over the lifecycle as across generations, and (iii) the intergenerational persistence of earnings is particularly high at the top end of the earnings distribution.