Intrafamiliar Consumption and Saving under Altruism and Wealth Considerations.

This paper introduces a non-cooperative and dynamic framework of intrafamiliar decisions where the partners obtain utility from own consumption, account for the partner's benefit from consumption ("altruism"), and appreciate wealth. Stationary wealth (and thus stationary consumption) decreases with respect to altruism under cooperation, but increases in the subgame-perfect equilibrium in (linear) Markov-perfect strategies. Moreover, non-cooperation reduces savings and altruism mitigates this effect. However, altruism is an imperfect substitute for commitment, and of course for cooperation, because open-loop strategies, although independent of altruism, result in greater wealth. Copyright 2002 by The London School of Economics and Political Science