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How to Preserve a Fortune: An Experimental Comparison of Foundations and Direct Transfers to the Heir

  • Werner Güth

    ()

  • Kurt-Dieter Koschmieder
  • M. Vittoria Levati

    ()

  • Ev Martin

    ()

Direct transfers allow heirs to freely use what has been passed on to them. Bequeathers who do not trust their descendants to make proper use of the fortune may prefer investing it in a safe foundation, thereby limiting their descendants' autonomy. In our study we compare experimentally these two institutional arrangements. Although bequeather and descendant have specific personal interests, they agree in their concern for preserving the fortune. Our results show that bequeathers tend to trust their descendant. When transfers to the descendant are less efficient than investments in a foundation, due to, e.g., inheritance taxation, overall bequests decrease significantly.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-33.

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Length: 24 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:esi:discus:2005-33
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