Family ties , incentives and development : A model of coerced altruism

We analyze the e¤ects of family ties on the incentives for production of e¤ort, where family ties are de…ned as a mixture of true and coerced altruism between family members. We model families as pairs of siblings. Each sibling exerts e¤ort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a speci…ed amount of this output with his sibling, if the latter’s output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. We compare such informal family insurance with actuarially fair formal insurance. We show that coerced family altruism reduces individual e¤orts in equilibrium. However, individuals always bene…t ex ante from living in families with coerced altruism, as compared with living in autarky. We show that a certain degree of coerced family altruism is robust as a social norm in a society of sel…sh individuals. Finally, we show that if family members are su¢ ciently altruistic to each other, then informal family insurance by way of coerced altruism may outperform actuarially fair insurance programs. Keywords: altruism, coerced altruism, family ties, insurance, moral hazard. JEL codes: D02, D13 *We are grateful to Daron Acemoglu, Philippe Aghion, Don Cox, Karen Norberg, Marcus Salomonsson, and Yannick Viossat for helpful comments and discussions. We also thank audiences at Boston College, Boston University, Carleton University, HEC Montréal, SUNY Binghamton, Université de Cergy-Pontoise, Université Laval, the CEA, the EEA, and the Midwest Economic Theory meetings for feedback. The usual disclaimer applies. Jörgen W. Weibull thanks the Knut and Alice Wallenberg Research Foundation for …nancial support.