Bequeathing in ambiguous times

Saito, Yuta (2020): Bequeathing in ambiguous times.

Abstract

This paper studies a model of altruistic bequest in times of ambiguity. The parent is ambiguous about future economic conditions, which affects the probability of the child’s economic success. We show that an increase in the degree of ambiguity makes the parent leave more transfer. Our model implies that the amount of parental transfer grows during a pandemic or recession.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bequest; Parental Transfer; Robust Control; Ambiguity
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

References

Francisco Barillas, Lars Peter Hansen, and Thomas J Sargent. Doubts or variability? journal of Economic Theory, 144(6):2388–2418, 2009.

Gary S Becker. A theory of social interactions. Journal of Political Economy, 82(6):1063– 1093, 1974.

Gary S Becker. Altruism in the family and selfishness in the market place. Economica, 48 (189):1–15, 1981.

Gary S Becker and Nigel Tomes. An equilibrium theory of the distribution of income and intergenerational mobility. Journal of Political Economy, 87(6):1153–1189, 1979.

B Douglas Bernheim, Andrei Shleifer, and Lawrence H Summers. The strategic bequest motive. Journal of Political Economy, pages 1045–1076, 1985.

Donald Cox. Motives for private income transfers. Journal of Political Economy, 95(3): 508–546, 1987.

James B Davies. Uncertain lifetime, consumption, and dissaving in retirement. Journal of Political Economy, 89(3):561–577, 1981.

Richard Dennis. How robustness can lower the cost of discretion. Journal of Monetary Economics, 57(6):653–667, 2010.

Daniel Ellsberg. Risk, ambiguity, and the savage axioms. The Quarterly Journal of Eco- nomics, pages 643–669, 1961.

Larry G Epstein and Tan Wang. Intertemporal asset pricing under knightian uncertainty. Econometrica: Journal of the Econometric Society, pages 283–322, 1994.

Axelle Ferriere and Anastasios G Karantounias. Fiscal austerity in ambiguous times. American Economic Journal: Macroeconomics, 11(1):89–131, 2019.

Lars Peter Hansen and Thomas J Sargent. Robustness. Princeton university press, 2008. LarsPeter Hansen and Thomas J Sargent. Robust control and model uncertainty. American Economic Review, 91(2):60–66, 2001.

Kate Huges. Covid-19 prompts surge in will writing. The Independ- ent, 2020. URL https://www.independent.co.uk/money/spend-save/ wills-legal-death-coronavirus-covid-19-divorce-children-property-wishes-funeral-a9463 html.

Anastasios G Karantounias. Managing pessimistic expectations and fiscal policy. Theoretical Economics, 8(1):193–231, 2013.

Rajnish Mehra and Edward C Prescott. The equity premium: A puzzle. Journal of Monetary Economics, 15(2):145–161, 1985.

Justin Svec. Optimal fiscal policy with robust control. Journal of Economic Dynamics and Control, 36(3):349–368, 2012.

Carl E Walsh. Robustly optimal instrument rules and robust control: an equivalence result. Journal of Money, Credit, and Banking, 36(6):1105–1113, 2004.

Michael Woodford. Robustly optimal monetary policy with near-rational expectations. American Economic Review, 100(1):274–303, 2010.

Menahem E Yaari. Uncertain lifetime, life insurance, and the theory of the consumer. The Review of Economic Studies, 32(2):137–150, 1965.