Dear Economist

Making money from parents

Dear Economist,

Parents often find that some of their children turn out wealthier than others. Doting but logical parents have been seen to apportion financial help unequally in order to help the least successful of their children at the expense of the wealthier ones.
So is one is better off being lazy and a failure in life in order to maximize the potential help from one’s parents?
Yours truly,
Alexander Ross, London

Dear Mr Ross,
‘Doting but logical’ describes the parents of Robert Barro’s macroeconomic models and Gary Becker’s economic theory of the family. Such parents make sure that all children enjoy equal levels of utility, and achieve this by giving larger transfers to poorer children.

Perhaps you hope that your own parents are Barro-Becker altruists. If so, you could guarantee an increased handout by earning less. Slacking would seem to be, on the face of things, attractive. Think again.

If your parents truly are Barro-Becker altruists, they will ensure that the post-bequest utilities of all children are equalized. This simply means that everyone will get an equal share of the total wealth generated by the parents and all siblings. By slacking, you simply reduce the size of the pie that your parents will eventually divide equally.

Your only hope would be that your parents are naïve and that they will favour you, the loser, without working through the mathematics properly. What are the chances?

Most parents divide bequests equally between children, and unequal bequests are often designed to repay more devoted children. The economists Audrey Light and Kathleen McGarry analysed interviews with over 3000 mothers with at least two adult children. Just one per cent said they planned to make unequal bequests because one child had greater needs than the others. Slack off if you like, but you’re gambling on long odds.

23rd of October, 2005Dear Economist • Comments off