Parental Altruism Under Imperfect Information : Theory and Evidence

Can we reconcile the predictions of the altruism model of the family with the evidence on intervivos transfers in the US? This paper expands the altruism model by introducing effort of the child and by relaxing the assumption of perfect information of the parent about the labor market opportunities of the child. First, I solve and simulate a model of altruism under imperfect information. Second, I use cross-sectional data to test a prediction of the model: Are parental transfers especially responsive to the income variations of children who are very attached to the labor market? The results suggest that imperfect information accounts for several patterns of intergenerational transfers in the US