Rotten kid theorem

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 in order 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.