The Rotten-Kid Theorem Meets the Samaritan's Dilemma

Abstract

A familiar result in the economic theory of the family is Becker's rotten-kid theorem. This theorem states that altruism by a family member will lead other selfish members to act efficiently from the family viewpoint. We extend Becker's one-period model to two periods and show that parental altruism can result in an inefficiency known in other contexts as the Samaritan's dilemma. Implications of this for transfer arrangements within the family and for the Ricardian equivalence theorem are drawn.