This paper presents an overlapping generations model to explain why humans live in families rather than in other pair groupings. Since most non-human species are not familial, something special must be behind the family. It is shown that the two necessary features that explain the origin of the...

Financial linkages smooth the shocks faced by individual components of the system, but they also create a wedge between ownership and decision-making. The classical intuition on the role of pooling risk in raising welfare is valid when ownership is evenly dispersed. However, when the ownership...

Why do tax rates vary so much across countries? We study the role of altruism and ethnic fragmentation in redistribution. The government of a two-party democracy is elected by altruistic voters and decides on a redistributive income tax. Social identification directs voters' altruism toward...