This paper presents estimates of how an increase in welfare benefits for the welfare-eligible affects the provision of parental support in the form of both financial transfers and shared residence based on an overlapping-generations framework incorporating game-theoretic interactions among parents, their adult children, and the government. The empirical results, obtained from two longitudinal data sets, indicate that the parents view a dollar of income earned by their daughters as equivalent to a dollar increase in welfare benefits. However, there exists only a small trade-off between the generosity of government aid and the incidence of parental aid.

Over the past decade, a substantial literature on methods for the estimation of discrete choice dynamic programming (DDP) models of behavior has developed. However, the implementation of these methods can impose major computational burdens because solving for agents' decision rules often involves high dimensional integrations that must be performed at each point in the state space. In this paper we develop an approximate solution method that consists of: (1) using Monte Carlo integration to stimulate the required multiple integrals at a subset of the state points, and (2) interpolating the non-simulated values using a regression function. The overall performance of this approximation method appears to be excellent.