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Gonzalez, Francisco M.; Lazkano, Itziar; Smulders, Sjak A.
Journal of economic theory, 11/2018, Letnik: 178Journal Article
We show that standard preferences of altruistic overlapping generations exhibit future bias, which involves preference reversals associated with increasing impatience. This underlies a conflict of interest between successive generations. We explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time. We argue that future bias creates incentives to legislate and sustain a pay-as-you-go pension system, which every government views as a self-enforcing commitment mechanism to increase future old-age transfers.
