Tough love for lazy kids: dynamic insurance and equal bequests

0490271 - NHU-C 2019 RIV US eng J - Journal Article
Slavík, Ctirad - Wiseman, K.
Tough love for lazy kids: dynamic insurance and equal bequests.
Review of Economic Dynamics. Roč. 27, January (2018), s. 64-80. ISSN 1094-2025. E-ISSN 1096-6099
Institutional support: Progres-Q24
Keywords : intergenerational transfers * equal bequest division puzzle * private information
OECD category: Applied Economics, Econometrics
Impact factor: 1.580, year: 2018

This paper develops a dynamic insurance model to explain a central puzzle in intergenerational transfers: gifts partially compensate children for negative income shocks, but bequests are typically divided equally. In the model, parents use gifts (early in life) and bequests (later in life) to provide insurance against income shocks, but take into account that children would shirk if offered large transfers. We show in a simple model that parents can provide better incentives later in life by giving equal bequests. In a quantitative model, gifts are compensatory while bequests are nearly uncorrelated with income and approximately equal in most families.

Permanent Link: http://hdl.handle.net/11104/0284532