The wealth model: efficiency in education and distribution in the family.

Abstract

In the wealth model of Becker and Tomes (JPE 1976) altruistic parents provide their children of differing abilities with different amounts of human capital. If the parents devote enough resources to their children Becker and Tomes show that parents with equal concern for their children allocate human resource investments unequally so that each child receives the wealth-maximizing level of education; under certain assumptions the wealth-maximizing level of human capital is also the socially efficient level. After providing each child with the wealth-maximizing level of education parents use transfers (inter-vivos gifts and postmortem bequests) to equalize their childrens wealth providing higher transfers to children with lower earnings. The wealth model implies qualitatively different allocations of human capital and transfers when parents are less wealthy or less altruistic. The authors distinguish among 5 cases. Only in the very high resource case do all children necessarily receive the wealth-maximizing level of education and only in the very high resource case do transfers necessarily equalize the wealth of all children. The authors show that for a range of levels of resources devoted to children the wealth model implies that not all children receive wealth-maximizing levels of education and that some children receive transfers while their siblings receive positive transfers. The authors have no empirical evidence bearing directly on the question of whether children receive wealth-maximizing levels of education but they examine evidence bearing on the pattern of transfers and disinheritance implied by the wealth model. Their empirical results are generally inconsistent with the predictions of the wealth model. (authors)