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FOR LOVE OR REWARD? Experimental evidence on the economics of gift-giving to parents by their adult children

Gifts to elderly parents from their adult children are often motivated by the latter''s expectations of what they may receive in return. That is the central finding of an experimental economic study by Professors Maria Porter and Abi Adams, published in the December 2016 issue of the Economic Journal.

Their evidence on the motivation behind gift?giving provides more than simply a window into the human psyche. The research also yields valuable insights for the design of pension systems and old age care, which often depends on how family dynamics interact with policy measures. For example, if adult children are motivated more by selfishness than by love, increasing the generosity of government programmes for the elderly will not necessarily ''crowd out'' money that parents receive from their offspring.

Further, with the gift?giving season fast approaching, it''s a good time to step back and ask questions such as: what motivates gift?giving habits? Why do adult children give to their parents? Is it simply because they love them and are concerned for their wellbeing? Or are gifts given with the expectation of something in return?

The two economists from Michigan State University and the University of Oxford hypothesised that giving between children and parents isn''t purely motivated by love or emotions. Rather, strategising based on how much parents know about their children''s decision?making processes – and thus how likely parents are to reciprocate and give something in return – plays an important role.

To test this hypothesis, the researchers invited adult children to play a series of games with their parents and with strangers in a laboratory. In each game, the adult children received a set of tokens, the value of which varied depending on whether they chose to keep them or give them away. For some games, tokens were worth more when they were kept for themselves rather than given to strangers or parents. For others, the tokens were more valuable when given away.

To determine whether the children were motivated by strategic reasons, the information that parents were told about their children''s giving choices was varied. Some participants were told that their parents would get detailed information about how much money they chose to give. Others were told that their parents would not know anything about the games.

Children who were told that their parents wouldn''t know how much they chose to give or withhold proved to be more likely to keep all the tokens for themselves rather than give any to their parents.

In contrast, as soon as participants knew that their parents would be informed about their financial decisions, they were far more likely to share their tokens with parents. This effect was much stronger for those who were more selfish about sharing with strangers.

This reveals that adult children, especially the selfish ones, tend to share with their parents for strategic rather than altruistic reasons. In other words, many children provide gifts to their elderly parents because of expectations of what they may receive in return.

What do these insights have to do with old?age care and pensions? Economists are often concerned with how family dynamics might influence the effectiveness of these policies. Economic models that assume giving within the family is purely altruistic predict that increasing government payments to the elderly will actually reduce the amount of money that children give to their parents. This occurs because additional financial support from the government offsets parents'' need for their children''s help.

But the new findings suggest that this ''crowding out'' effect might not be as large as some think. Children give for reasons other than altruism, and these motivations will not be diminished by increases in the generosity of government programmes.

This is relevant for debates about public pension systems in developing countries, where elderly parents rely on their children more than they rely on public assistance for financial help. It is also relevant to discussions of the provision of long?term care insurance in developed economies, where family help still plays a large role.

''For Love or Reward? Characterising Preferences for Giving to Parents in an Experimental Setting'' by Maria Porter and Abi Adams is published in the December 2016 issue of the Economic Journal. Maria Porter is Assistant Professor in the Department of Agricultural, Food, and Resource Economics at Michigan State University. Abi Adams is Associate Professor in the Department of Economics at the University of Oxford.