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Junior is Rich: Bequests as Consumption

  • George M. Constantinides
  • John B. 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://www.nber.org/papers/w11122.pdf
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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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