Chapter 10. Conflict and Cooperation Within the Family, and Between the State and the Family, in the Provision of Old-Age Security

The early contributions to the microeconomic literature assume that only market goods yield utility, and that the only way adults can secure the consumption of these goods in old age is by saving. The more recent contributions recognize, however, that the elderly derive utility also from goods without a perfect market substitute like the care and attention they might receive from their near and dear, and that the elderly may eventually become too old or infirm to keep control over their own money. According to a branch of the literature, parents negotiate the provision of personal services directly with their children. According to another, such negotiations are made unnecessary by self-enforcing family rules. Fertility, aging, care of the very young and care of the very old are inextricably related issues also at the aggregate level, because a society cannot collectively provide for its aged members by simply accumulating assets. It must also have enough working-age people to man the physical capital and materially take care of the elderly. The link between fertility- and aging-related questions is stronger in the presence of an underfunded public pension system, where current pensions are paid for by current workers. The chapter addresses all these questions and concludes with a discussion of second-best policy in the presence of informational asymmetries.