ECON 151 Lecture Notes - Lecture 7: Budget Constraint, Parental Investment, Utility
11 Nov 2020
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Document Summary
It is a technique to maximize utility function under constraint ( here budget constraint). Write the derivative of each variable and substract times the budget constraint. The solution gives you the equation that maximizes the utility under constraint. The marginal utility from the parents" consumption equals the marginal utility of the child"s investment times altruism ; Marginal utility of the child"s investment: how efficient the parental investment is; Altruism: how much the utility of the child matter in comparison with the parental utility. When parents get richer so do kids (generational) Look at regression coefficients on parent and children wages. We can test using data: log(wc) = + log(wp) + (8) Where measures the size of wc x wp y. Is the inter-generational wage/income elasticity > 0 is very likely wealth begs wealth. If <1, very likely too: the richest parents is unlikely to give birth to the richest children.
