AbstractsEconomics

My research emphasizes the role of interrelated preferences in determining economic choices within a household. In this regard, I study both intergenerational interactions (between parents and children) and intragenerational interactions (between spouses). These linkages have important implications on individual economic behavior such as savings, labor supply, investment in human capital, and bequests which in turn affects aggregate savings and growth. Standard altruism models developed by Barro and Becker are based on an important assumption that parents and children have homogeneous discount factors, which precludes any role parents can play in influencing their child’s time preferences. However, there is empirical evidence that parents attempt to shape their children’s attitudes. The first essay of my dissertation, “Tough Love and Intergenerational Altruism” (based on a joint work with Masao Ogaki), proposes a framework to study the role of parents in shaping children’s time preferences. The tough love altruism model modifies the standard altruism model in two ways. First, the child's discount factor is endogenously determined so that low consumption at young ages leads to a higher discount factor later in her life. Second, the parent evaluates the child's lifetime utility with a constant high discount factor. In contrast to the predictions of the standard model that transfers are independent of exogenous changes in the child's discount factor, the tough love altruism model predicts that transfers from the parent will fall when the child's discount factor falls. Thus, our model is more consistent with empirical evidence on parental punishments than the standard altruism model. The second essay, “Adolescent Substance Use and Intergenerational Transfers: Evidence from Micro Data,” provides empirical evidence for the use of pecuniary incentives by the parent to influence child behavior. Using the first seven waves of the National Longitudinal Survey of Youth, 1997 (NLSY97), I measure the effect of child alcohol consumption on parental transfers. Owing to the plausible endogeneity of the child’s alcohol use in the regression equation of transfers she receives from parents, I estimate this relationship using an instrumental variable which utilizes variation in the price of alcoholic beverages over time and across states as a source of exogenous variation. The main finding of the paper is that after accounting for the possible endogeneity of substance use, the incidence of alcohol consumption among youths significantly reduces the amount of parental transfers they receive. Given the robust evidence for a negative correlation between youth substance use and their discount factor in the economics and psychology literature, this result provides an empirical basis for the tough love model of intergenerational altruism. The existing literature on joint retirement suggests that married couples tend to coordinate their retirement decisions which seem to be largely explained by the complementarity in their…