Shaping intergenerational relationships: the demonstration effect

Abstract

According to the demonstration effect theory, parents make intergenerational transfers to their elders in order to elicit a symmetric future behavior from their children. In this paper we show that upstream transfers are expected to increase with low returns from alternative financial assets and with the donor's life expectancy. The latter effect creates a greater incentive for daughters to care for parents.

Giving to family versus giving to the community within and across generations

“…Information accumulation is a function of parental inputs P j , a key aspect of which is parents' transfers to network j, and external sources of knowledge, E j . In the equation below, the parameter a j , measures an individual's specific capacity at a given age i to learn about transfer network j Following Chiteji and Stafford (1999), in simple linear form, we postulate that the child's knowledge of net benefits from participating in a given transfer network,k j are 5 Cox and Stark (1998) provide an influential model of intergenerational family transfers, termed the "demonstration effect" in which parents send transfers to their (elderly) parents, in order to shape their childrens' preferences, and to ensure that they will receive old-age support from their children (see also Arrondel and Masson, 2001;Jellal and Wolff, 2000). However, parental actions may shape the transfer behavior of their adult children even in cases where childrens' transfer choices do not yield clear parental benefits 4 given as follows:k j = a j P ji + E ji − δk j Suppose that this process operates over the period prior to when the child forms his or her own household and this knowledge in conjunction with income and other variables shape the network participation decision of the child when he forms his own household.…”

“…Children may learn about giving to the family and to community organizations by observing their parents' behavior at an early age and retain these habits when they establish their own households. It is also possible that parents attempt to directly shape children's preferences towards giving to the family or to the community through their actions (Cox and Stark, 1998;Jellal and Wolff, 2000). Parental influences in giving behavior may also arise because income and wealth tend to be highly correlated among family members (Grawe and Mulligan, 2002).…”

Insecure old-age security

“…According to Becker (1993), parents who are worried about old-age support attempt to inculcate in their children a feeling of culpability and guilt if the latter do not comply with the desired behaviour. Cox and Stark (1996) and Jellal and Wolff (2000) argue in favour of a demonstration effect, which induces parents to shape the children's preferences by setting an example. Parents care for their elders as they would like to be treated themselves later by their progeny.…”

“…Concluding remarks are found in Section 5. In order to secure for old-age support, parents may either save in the financial market with a sure return of saving or engage in risky demonstration-effect transfers whose rate of return depends on the probability to be imitated by children in the future ( Jellal and Wolff, 2000). The level of upstream transfers made by adults is an increasing function of the rate of return of the demonstration effect.…”

Social security family finance and demography

“…In the second one, and particularly, in developing countries, children are mainly viewed as investment goods, hence the parents reproductive motivation is thus associated to the socalled old-age security hypothesis (Leibenstein, 1957). According this hypothesis (Jellal ,2000;, in a socio-economic environment where parents are unsure about their potential ability to support themselves during old age, they may rear children in the expectation of receiving support from their children in their old age (Neher, 1971;Willis, 1980;Nerlove et al 1987). The underlying transfer mechanism is one of direct reciprocity driven by evolutionary cultural transmission, where parents give first and children give later, without any intergenerational conflict , children are implicitly considered as passive agents under the control of parents, who honor the contract loan by reimbursing their parents during their old-age.…”