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Tough Love for Lazy Kids: Dynamic Insurance and Equal Bequests

Author

Listed:
  • Ctirad Slavik

    (CERGE-EI)

  • Kevin Wiseman

    (International Monetary Fund)

Abstract

This paper develops a dynamic insurance model to explain a central puzzle in intergenerational transfers: gifts partially compensate children for negative income shocks, but bequests are typically divided equally. In the model, parents use gifts (early in life) and bequests (later in life) to provide insurance against income shocks, but take into account that children would shirk if offered large transfers. We show in a simple model that parents can provide better incentives later in life by giving equal bequests. In a quantitative model, gifts are compensatory while bequests are nearly uncorrelated with income and approximately equal in most families. (Copyright: Elsevier)

Suggested Citation

  • Ctirad Slavik & Kevin Wiseman, 2018. "Tough Love for Lazy Kids: Dynamic Insurance and Equal Bequests," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 64-80, January.
    • Handle: RePEc:red:issued:14-279
    DOI: 10.1016/j.red.2017.11.001
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    More about this item

    Keywords

    Intergenerational Transfers; Equal Bequest Division Puzzle; Private Information;
    All these keywords.

    JEL classification:

    • D19 - Microeconomics - - Household Behavior - - - Other
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J1 - Labor and Demographic Economics - - Demographic Economics

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