Family ties, incentives and development: A model of coerced altruism

We analyze the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. We model families as pairs of siblings. Each sibling exerts effort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a specified amount of this output with his sibling, if the latter is output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. We compare such informal family insurance with actuarially fair formal insurance.