Private transfers with incomplete information: A contribution to the “altruism-exchange motivation for transfers” debate

We examine the role of altruism in determining optimal transfers from a principal (a mother) to selfish agents (her children) in return for attention services. Transfer-attention contracts are studied in a setting in which informational asymmetries arise from the inability of a parent to determine the extent of her children's selfishness. We find a predominating exchange motive for transfers in the symmetric informational regime we study. However, both altruism and exchange are important motives under asymmetric information. We show that altruism facilitates transfer-attention exchange arrangements with certain trade partners under incomplete information, but diminishes trade with others. Received: 19 November 2000/Accepted: 17 May 2001 The paper was written while Edward Seiler was a fellow at the department of Agricultural Economics and Management at the Hebrew University. The authors wish to thank Elad Aharoni for research assistance, and Judith Rivlin, Yacov Tsur, two anonymous referees and seminar participants at the Hebrew University for helpful comments. Responsible editor: Alessandro Cigno.