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Junior is Rich: Bequests as Consumption

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Author Info
George M. Constantinides
John B. Donaldson
Rajnish Mehra

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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.

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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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Handle: RePEc:nbr:nberwo:11122

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
D1 - Microeconomics - - Household Behavior
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: 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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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rajnish Mehra & Edwarad C Prescott & Facundo Piguillem, 2007. "Intermediated Quantities and Returns," Levine's Bibliography 122247000000001580, UCLA Department of Economics. [Downloadable!]
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  2. Carlos Vargas-Silva, . "Crime and Remittance Transfers," Working Papers 0903, Sam Houston State University, Department of Economics and International Business. [Downloadable!]
  3. Giorgio Bellettini & Filippo Taddei, 2009. "Real Estate Prices and the Importance of Bequest Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  4. Professor George M Constantinides, 2005. "Market Oganization and the prices of financial Assets," Money Macro and Finance (MMF) Research Group Conference 2005 49, Money Macro and Finance Research Group. [Downloadable!]
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  5. Enrico Giorgi & Thorsten Hens & János Mayer, 2007. "Computational aspects of prospect theory with asset pricing applications," Computational Economics, Springer, vol. 29(3), pages 267-281, May. [Downloadable!] (restricted)
  6. George M. Constantinides, 2002. "Rational Asset Prices," NBER Working Papers 8826, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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