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Junior is Rich: Bequests as Consumption

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  • George M. Constantinides
  • John B. Donaldson
  • Rajnish Mehra

Abstract

We explore the consequences for asset pricing of admitting a bequest motive into an otherwise standard overlapping generations model where agents trade equity and perpetual debt securities. Prices of securities are seen to be approximately 50% higher in an economy with bequests as compared to an otherwise identical one where bequests are absent. Robust estimates of the equity premium are obtained in several cases where the desire to leave bequests is modest relative to the desire for old age consumption.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11122.

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Date of creation: Feb 2005
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Publication status: published as George Constantinides & John Donaldson & Rajnish Mehra, 2007. "Junior is rich: bequests as consumption," Economic Theory, Springer, vol. 32(1), pages 125-155, July.
Handle: RePEc:nbr:nberwo:11122

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Cited by:
  1. Carlos Vargas-Silva, 2009. "Crime and Remittance Transfers," Eastern Economic Journal, Palgrave Macmillan, vol. 35(2), pages 232-247.
  2. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2007. "Intermediated quantities and returns," Working Papers, Federal Reserve Bank of Minneapolis 655, Federal Reserve Bank of Minneapolis.
  3. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2013. "Deviant Generations, Ricardian Equivalence, and Growth Cycles," Staff General Research Papers 12939, Iowa State University, Department of Economics.
  4. Professor George M Constantinides, 2005. "Market Oganization and the prices of financial Assets," Money Macro and Finance (MMF) Research Group Conference 2005, Money Macro and Finance Research Group 49, Money Macro and Finance Research Group.
  5. Rangan Gupta & Lardo Stander, 2014. "Endogenous Fluctuations in an Endogenous Growth Model with Ination Targeting," Working Papers, Department of Research, Ipag Business School 2014-461, Department of Research, Ipag Business School.
  6. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2008. "Costly Financial Intermediation in Neoclassical Growth Theory," NBER Working Papers 14351, National Bureau of Economic Research, Inc.
  7. Enrico Giorgi & Thorsten Hens & János Mayer, 2007. "Computational aspects of prospect theory with asset pricing applications," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 29(3), pages 267-281, May.
  8. Sami Attaoui & Pierre Six, 2014. "Hedging demand and the certainty equivalent of wealth," Economics Bulletin, AccessEcon, vol. 34(3), pages 1742-1750.
  9. George M. Constantinides, 2002. "Rational Asset Prices," Journal of Finance, American Finance Association, American Finance Association, vol. 57(4), pages 1567-1591, 08.

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