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Junior is rich: bequests as consumption

Listed author(s):
  • George Constantinides
  • John Donaldson
  • Rajnish Mehra

    ()

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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File URL: http://hdl.handle.net/10.1007/s00199-006-0163-x
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 32 (2007)
Issue (Month): 1 (July)
Pages: 125-155

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Handle: RePEc:spr:joecth:v:32:y:2007:i:1:p:125-155
DOI: 10.1007/s00199-006-0163-x
Contact details of provider: Web page: http://www.springer.com

Web page: http://saet.uiowa.edu/

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