Rotten kid theorem | Wikipedia audio article
Channel: wikipedia tts
Date: 2019-02-18

This is an audio version of the Wikipedia Article:
https://en.wikipedia.org/wiki/Rotten_kid_theorem


00:02:39 Further applications
00:03:48 See also



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SUMMARY
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Gary Becker's rotten kid theorem is a thought experiment in economics. It posits that family members, even if they are selfish, will act to help one another if their personal incentives are properly aligned. The theorem is one of the most famous theorems within family economics, and applied mechanism design.
In his original work, Becker paints a hypothetical situation in which children will receive gifts of money income from a wealthy, altruistic parent to make them happy. One of the children is a selfish, "rotten", child who would take pleasure in harming his sibling. However, if he chose to actually hurt his sibling, the altruistic parent would help the victim, and curtail help to the wrongdoer. That way, the altruist would function as a means of transferring utility between the rotten kid and his sibling. In the process the parent would also bring about an incentive not to wrong the sibling in the first place, because any utility robbed of the sibling would be automatically taken away from the rotten kid.
The theorem relies on multiple assumptions. First, the altruistic parent has to be wealthy enough to compensate for any wrongdoing by the rotten kid. Secondly, he has to be a pure, rational altruist, with full knowledge of the personal utility of both the rotten kid and his sibling. Thirdly, the altruist would have to be fixed in his own income. And so on.
The theorem has proven widely influential in the economic analysis of family life, and beyond that, other regarding economic institutions in general. It has done so especially in the economical analysis of unconventional and nonmonetary economic institutions, traditionally and especially in the popular sphere regarded as being outside the ambit of the economic science. Thus today it is a standard example of the novel contribution to economic literature that the so-called nonstandard economics has brought about.