Self--enforcing Intergenerational Transfers and the Provision of Education

This paper considers intra--family financing of human capital under the assumptions that individuals are selfish and binding contracts are not feasible. Cooperation among family members is possible through a family norm (a family "social capital") which prescribes the obligations to be met at each stage in life and sanctions for those who deviate. We characterize the set of self--enforcing transfers and show that there is a downward bias in the family provision of education. This gives a rationale for public action as a remedy to the lack of commitment between selfish family members. Copyright The London School of Economics and Political Science 2003