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Junior is rich: bequests as consumption

  • 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 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
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