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Intergenerational Transfers and the Distribution of Earnings

Glenn C. Loury
Econometrica
Vol. 49, No. 4 (Jul., 1981), pp. 843-867
Published by: The Econometric Society
DOI: 10.2307/1912506
Stable URL: http://www.jstor.org/stable/1912506
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Intergenerational Transfers and the Distribution of Earnings
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Abstract

This paper models the dynamics of the earnings distribution among successive generations of workers as a stochastic process. The process arises from the random assignment of abilities to individuals by nature, together with the utility maximizing bequest decisions of their parents. A salient feature of the model is that parents cannot borrow to make human capital investments in their offspring. Consequently the allocation of training resources among the young people of any generation depends upon the distribution of earnings among their parents. This implies in turn that the often noted conflict between egalitarian redistributive policies and economic efficiency is mitigated. A number of formal results are proven which illustrate this fact.

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