A model of intergenerational transfers

Extending some existing literature, this paper formalizes the idea that intergenerational transfers occur because people care about the characteristics (i.e quantity and quality) of their offspring, rather than their children\u27s welfare per se or consumption. The model analyzes this transfer motive in an infinite Markovian game framework, and it proves the existence of a stationary Markov Perfect equilibrium. Further, the analysis shows that under certain conditions, the proposed transfer motive will diminish, as the average income of an economy is sufficiently high. Thus, it suggests that as incomes continue to rise beyond a certain level, the (extended) life-cycle hypothesis will likely be a better and better approximation for explaining most people\u27s saving behavior. This result also provides an explanation for the decline of the saving rates in the U.S. and other developed countries