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Aspirations, Habit Formation, and Bequest Motive

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  • Jaime Alonso-Carrera
  • Jordi Caballe
  • Xavier Raurich

Abstract

We analyze how the presence of endogenous preferences affects the altruistic bequest motive from parents to children. We will show that the existence of habits raises the threshold value of the intergenerational discount factor above which altruistic bequests are positive, while aspiration formation could push this value down. Therefore, the dynamic inefficiency of the economy with no altruism is not sufficient to prevent the bequest motive from being operative under aspiration formation. We also discuss the implications of public debt when the bequest motive is inoperative and preferences exhibit habit and aspiration formation.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 136.

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Date of creation: Jul 2004
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Handle: RePEc:bge:wpaper:136

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Keywords: Aspirations; Habits; Bequests;

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References

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  1. Alonso-Carrera, Jaime & Caballe, Jordi & Raurich, Xavier, 2005. "Growth, habit formation, and catching-up with the Joneses," European Economic Review, Elsevier, vol. 49(6), pages 1665-1691, August.
  2. Caballe, J., 1995. "Growth Effects of Fiscal Policy under Altruism and Low Elasticity of Intertemporal Substitution," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 309.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Christopher D Carroll & Jody Overland & David N Weil, 1997. "Comparison Utility in a Growth Model," Economics Working Paper Archive 387, The Johns Hopkins University,Department of Economics.
  4. Caballe, Jordi, 1995. "Endogenous Growth, Human Capital, and Bequests in a Life-Cycle Model," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 156-81, January.
  5. Laitner, John, 1988. "Bequests, Gifts, and Social Security," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(2), pages 275-99, April.
  6. Croix, David de la & Michel, Philippe, 1999. "Optimal growth when tastes are inherited," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(4), pages 519-537, February.
  7. Andrew B. Abel, 1998. "Risk Premia and Term Premia in General Equilibrium," NBER Working Papers 6683, National Bureau of Economic Research, Inc.
  8. Andrew B. Abel, 1985. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
  9. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  10. Jhy-yuan Shieh & Ching-chong Lai & Wen-ya Chang, 2000. "Addictive behavior and endogenous growth," Journal of Economics, Springer, Springer, vol. 72(3), pages 263-273, October.
  11. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-42, Board of Governors of the Federal Reserve System (U.S.).
  12. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Consumption Externalities, Habit Formation and Equilibrium Efficiency," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 231-251, 06.
  13. Mohamed Jellal & Francois-Charles Wolff, 2002. "Altruistic Bequests with Inherited Tastes," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 95-113, August.
  14. de la Croix, David & Michel, Philippe, 1997. "Altruism and self-refrain," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Apr 1998.
  15. de la Croix, David, 1996. "The Dynamics of Bequeathed Tastes," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1996004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  16. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  17. Galor, Oded & Ryder, Harl E., 1989. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Journal of Economic Theory, Elsevier, vol. 49(2), pages 360-375, December.
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Citations

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Cited by:
  1. Luciano Fanti, 2012. "Habits, aspirations and endogenous fertility," Discussion Papers 2012/143, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  2. Carlos Vargas-Silva, 2009. "Crime and Remittance Transfers," Eastern Economic Journal, Palgrave Macmillan, vol. 35(2), pages 232-247.
  3. Valente, Simone, 2011. "Habit formation and resource dependence in dynastic economies," Mathematical Social Sciences, Elsevier, Elsevier, vol. 61(3), pages 131-145, May.
  4. Barnett, Richard C. & Bhattacharya, Joydeep, 2006. "Rejuveniles and Growth," Staff General Research Papers 12653, Iowa State University, Department of Economics.
  5. Gori, Luca & Sodini, Mauro, 2012. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," MPRA Paper 35942, University Library of Munich, Germany.
  6. Schäfer, Andreas & Valente, Simone, 2011. "Habit Formation, Dynastic Altruism, And Population Dynamics," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 15(03), pages 365-397, June.
  7. Viola Angelini, 2006. "Consumption and Habit Formation when Time Horizon is Finite," Discussion Papers, Department of Economics, University of York 06/27, Department of Economics, University of York.
  8. Emmanuelle Augeraud-Veron & Mauro Bambi, 2012. "Does habit formation always increase the agents' desire to smooth consumption?," Discussion Papers, Department of Economics, University of York 12/12, Department of Economics, University of York.
  9. Casado, Jose Maria & Alvarez-Cuadrado, Francisco & Labeaga, Jose Maria & Sutthiphisal, Dhanoos, 2012. "Envy and habits: Panel data estimates of interdependent preferences," MERIT Working Papers 054, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  10. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2005. "Estate Taxes, Consumption Externalities, and Altruism," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 658.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  11. Jordi Caballé & Ana Moro-Egido, 2008. "The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 761.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  12. Garance Genicot & Debraj Ray, 2014. "Aspirations and Inequality," NBER Working Papers 19976, National Bureau of Economic Research, Inc.

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