Abstract
This paper discusses the tough love model of intergenerational altruism we developed and some of on-going empirical research on tough love behavior in survey data collected in Japan and United States. The tough love model modifies the Barro-Becker standard altruism model in two ways. First, the child’s discount factor is endogenously determined, so that low consumption at young age leads to a higher discount factor later in her life. Second, the parent evaluates the child’s lifetime utility with a constant high discount factor. The tough love model predicts that transfers from the parent will fall when the child’s discount factor falls. This is in contrast with the predictions of the standard altruism model that transfers from parents are independent of exogenous changes in the child’s discount factor. In the empirical work, the hypothesis that parents’ tough love behavior is affected by their worldviews is investigated.
