Intergenerational Transfer of Human Capital and Optimal Education Policy

We study the design of education policies (subsidies and public education) when parents' investment in education is motivated by warm‐glow altruism and determines the probability that a child has a high ability. The optimal subsidy is not necessarily positive. It is determined by two conflicting terms: a Pigouvian term (warm‐glow altruists do not properly account for the impact of education on future generations) and a “paternalistic” effect (the warm‐glow term may not be fully included in social welfare). Finally, total crowding out of private expenditure (for one of the types) by public education may be desirable.     

Collective Annuities and Redistribution

This paper studies the role of alternative pension systems that offer collective annuities. The defining characteristic of collective annuities is that they do not depend on an individual's survival probabilities. We show that such a system may be welfare improving (with a utilitarian social welfare function) even when private annuity markets are perfect and when life expectancy and earning abilities are positively correlated (i.e., in a setting that is  a priori  biased against collective annuities). We first concentrate on linear pension systems and contrast two schemes: a pure contributory (Bismarckian) pension and a flat rate (Beveridgean) pension. We show that the case for collective annuities is stronger when they are associated with a flat pension system. Then we analyze nonlinear pension schemes. We show that the solution can be implemented by a pension scheme associated with annuities that reflect some degree of "collectiveness." Unlike under pure collective annuities, benefits do depend on life expectancy but to a lesser degree than with actuarially fair private annuities. In other words, the impact of survival probabilities is mitigated rather than completely neutralized.