Persistent inequality: An explanation based on limited parental altruism

This paper proposes an alternative theory for the observed persistence in income inequality across households, a theory based on limited parental altruism. We argue that the degree of parental altruism is 'limited' by the economic status of the parent. A poor parent not only has less ability, but also has less willingness to invest in children's human capital formation. This generates a non-linearity in such investment expenditures. As a result, initial income differences may perpetuate over time-even with convex technology and convex preferences. In this context, we also compare the efficacy of the public vis-à-vis the private education system from the perspective of long run growth.