Tough Love For Lazy Kids
AbstractSimple theories about why parents give money to their children fail to explain a central puzzle in inter-generational transfers: While parents are alive, they give more money to their poorer children. Bequests, by contrast, are typically divided evenly between children. We construct a model in which altruistic parents behave this way when facing a dynamic insurance problem. Parents concentrate incentives later in life, so that poorer children are partially insured against income shocks early in life, while insurance and incentive motives offset each other in determining bequests. We show that equal division of bequests can arise in the presence of small costs of unequal division.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1091.
Date of creation: 2009
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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