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Junior is Rich: Bequests as Consumption

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  • George M. Constantinides
  • John B. Donaldson
  • Rajnish Mehra

Abstract

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.

Suggested Citation

  • George M. Constantinides & John B. Donaldson & Rajnish Mehra, 2005. "Junior is Rich: Bequests as Consumption," NBER Working Papers 11122, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11122
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    Cited by:

    1. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2011. "Costly financial intermediation in neoclassical growth theory," Quantitative Economics, Econometric Society, vol. 2(1), pages 1-36, March.
    2. Hamada, Kojun & Yanagihara, Mitsuyoshi, 2016. "Intergenerational altruism and the transfer paradox in an overlapping generations model," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 161-167.
    3. Rajnish Mehra & John Donaldson & Christos Koulovatianos & Jian Li, 2018. "Demographics and FDI: Lessons from China’s One-Child Policy," NCAER Working Papers 112, National Council of Applied Economic Research.
    4. Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2013. "Deviant generations, Ricardian equivalence, and growth cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 367-396, January.
    5. Enrico Giorgi & Thorsten Hens & János Mayer, 2007. "Computational aspects of prospect theory with asset pricing applications," Computational Economics, Springer;Society for Computational Economics, vol. 29(3), pages 267-281, May.
    6. Rangan Gupta & Lardo Stander, 2014. "Endogenous Fluctuations in an Endogenous Growth Model with Inflation Targeting," Working Papers 201432, University of Pretoria, Department of Economics.
    7. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2007. "Intermediated quantities and returns," Working Papers 655, Federal Reserve Bank of Minneapolis.
    8. George M. Constantinides, 2006. "Market Organization And The Prices Of Financial Assets," Manchester School, University of Manchester, vol. 74(s1), pages 1-23, September.
    9. repec:ipg:wpaper:2014-461 is not listed on IDEAS
    10. Carlos Vargas-Silva, 2009. "Crime and Remittance Transfers," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(2), pages 232-247.
    11. Sami Attaoui & Pierre Six, 2014. "Hedging demand and the certainty equivalent of wealth," Economics Bulletin, AccessEcon, vol. 34(3), pages 1742-1750.
    12. George M. Constantinides, 2002. "Rational Asset Prices," NBER Working Papers 8826, National Bureau of Economic Research, Inc.
    13. Bellettini Giorgio & Zanella Giulio & Taddei Filippo, 2013. "Bequest taxes, donations, and house prices," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-25, October.

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D1 - Microeconomics - - Household Behavior
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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