Intergenerational Family Transfers and Local Gossip in Japan: Comparative Political Economy of Insurance Provision

Why are transfers from younger to older generations generous in some societies and not in others? For example, people in northeast Japan tend to provide better nursing care to their aged parents and invest more in their children's education than those in the southwest. Communities in the northeast tend to be small and isolated compared to those in the southwest. This paper argues that differences in intergenerational dependence are due to demographic variation in community networks. This analysis of sustainability of intergenerational transfers posits a game theoretical model of overlapping generations in which breadwinners make transfers to their parents and children. A novel feature of the model is that there is a local community that may supply information about its members' past behaviors. I demonstrate that an efficient level of intergenerational transfers can be sustained if neighbors "gossip" about each other. As an implication, my theory suggests that individuals in a close-knit community prefer lower levels of social protection. Empirical results from Japan support this argument: Individuals who interact with their neighbors tend to provide better nursing care to their aged parents, spend more on their children’s education, and demand less from the government than those who do not interact with their neighbors.