Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?

Abstract

This paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods (FIGs), such as education and the environment, when agents are selfish or exhibit paternalistic altruism. We show that backward intergenerational goods (BIGs), such as social security, play a crucial role in sustaining investment in FIGs: without them investment is inefficiently low, but with them optimal investment is possible. We also show that making the provision of BIGs mandatory crowds out the voluntary provision of FIGs, and that population aging can increase investment in FIGs.