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A theory of family education incentives and inequality

Jellal, Mohamed (2014): A theory of family education incentives and inequality.

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Abstract

In this paper, we examine the consequences of imperfect information on the pattern of transfers from parents to children. Drawing on the theory of mechanism design, we consider a model of family contract with two levels of effort. We prove that equal transfers among children are expected under perfect information, while the second-best contract implies risk-sharing between the two generations, so that poor families experience higher agency costs, therefore inequality persists.

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