Bequest Behavior Research Articles

Social security, bequests, and social comparisons

AbstractWe examine the long‐run impact of unfunded social security on capital stock and wealth inequality in an overlapping generations (OLG) model where newborn individuals differ in their inheritance. In our model, individuals' decisions are subject to social comparisons, which can lead to overspending on personal consumption and result in zero bequests left within poor families. In this scenario, unfunded social security increases long‐run wealth inequality by redistributing wealth from poor to rich families, who always leave bequests. However, it increases long‐run capital stock, too. We also show that when none or all of the families leave bequests in the long run, our model predicts negative and neutral effects of social security on capital accumulation, in line with the standard OLG models of Diamond and Barro. Thus, our results emphasize the need to account for heterogeneity in bequest behavior in the analysis of social security.

Does the Source of Inheritance Matter in Bequest Attitudes? Evidence from Japan

A better understanding of the reasons for bequests can be pivotal for fiscal policy and wealth inequality management, as the different motives underlying bequest behavior have varied implications. This study examines bloodline-based indirect reciprocity in bequest attitudes over three generations. In doing so, it extends the family tradition model to a bloodline-based family tradition model. This extended model suggests that the source of the inheritance impacts the amount of the bequest left to one’s children or spouse. To test the hypothesis, this study empirically analyzes survey data from the 2009 wave of the Preference Parameters Study for Japan. The results suggest that with some socioeconomic characteristics controlled for, those who have received an inheritance from their parents are more likely to intend to bequest as much as possible to their children, while Japanese females (males) who have received an inheritance from their spouse’s parents are more likely to intend to bequest as much as possible to both their children and their spouse (their spouse only). Hence, the source of the inheritance does matter in bequest attitudes, suggesting bloodline-based indirect reciprocity in bequest attitudes.

Is the selfish life-cycle model more applicable in Japan and, if so, why? A literature survey

The selfish life-cycle model or hypothesis is, together with the dynasty or altruism model, the most widely used theoretical model of household behavior in economics, but does this model apply in the case of a country like Japan, which is said to have closer family ties than other countries? In this paper, we first provide a brief exposition of the simplest version of the selfish life-cycle model and then survey the literature on household saving and bequest behavior in Japan in order to answer this question. The paper finds that almost all of the available evidence suggests that the selfish life-cycle model applies to at least some extent in all countries but that there is more consistent support for this model in Japan than in the United States and other countries. It then explores possible explanations for why the life-cycle model is more consistently supported in Japan than in other countries, attributing this finding to government policies, institutional factors, economic factors, demographic factors, and cultural factors. Finally, it shows that the findings of the paper have many important implications for economic modeling and for government tax and expenditure policies.

Is the Selfish Life-Cycle Model More Applicable in Japan and, If so, Why? A Literature Survey

The selfish life-cycle model or hypothesis is, together with the dynasty or altruism model, the most widely used theoretical model of household behavior in economics, but does this model apply in the case of a country like Japan, which is said to have closer family ties than other countries? In this paper, we first provide a brief exposition of the simplest version of the selfish life-cycle model and then survey the literature on household saving and bequest behavior in Japan in order to answer this question. The paper finds that almost all of the available evidence suggests that the selfish life-cycle model applies to at least some extent in all countries but that there is more consistent support for this model in Japan than in the United States and other countries. It then explores possible explanations for why the life-cycle model is more consistently supported in Japan than in other countries, attributing this finding to government policies, institutional factors, economic factors, demographic factors, and cultural factors. Finally, it shows that the findings of the paper have many important implications for economic modeling and for government tax and expenditure policies.

Is the Selfish Life-Cycle Model More Applicable in Japan and, If So, Why? A Literature Survey

The selfish life-cycle model or hypothesis is, together with the dynasty or altruism model, the most widely used theoretical model of household behavior in economics, but does this model apply in the case of a country like Japan, which is said to have closer family ties than other countries? In this paper, we first provide a brief exposition of the simplest version of the selfish life-cycle model and then survey the literature on household saving and bequest behavior in Japan in order to answer this question. The paper finds that almost all of the available evidence suggests that the selfish life-cycle model applies to at least some extent in all countries but that there is more consistent support for this model in Japan than in the United States and other countries. It then explores possible explanations for why the life-cycle model is more consistently supported in Japan than in other countries, attributing this finding to government policies, institutional factors, economic factors, demographic factors, and cultural factors. Finally, it shows that the findings of the paper have many important implications for economic modeling and for government tax and expenditure policies.

BEQUEST AND MORAL HAZARD IN FAMILY

Observed bequest patterns of widely diverse societies are polarized into unigeniture (giving all to one child) and equigeniture (dividing bequests equally). Over time, inheritance custom evolves from unigeniture to equigeniture. To explain these two observations, this paper proposes a model of bequest behavior that a parent cares welfare of his children while he wants them to expend costly and unverifiable efforts for family. All the stable equilibrium inheritance customs comprise unigeniture and equigeniture only, being consistent with the observed polarization. Moreover, a rise in the productivity of efforts for family can cause the evolution to equigeniture from unigeniture.

ARE THE JAPANESE UNIQUE? EVIDENCE FROM SAVING AND BEQUEST BEHAVIOR

In this paper, we attempt to shed light on whether Japanese households are rational or if their behavior is influenced by culture and social norms by examining their saving and bequest behavior. To summarize our main findings, we find that Japan’s household saving rate showed great volatility, was often low and even negative and was high only during the 25-year period from around 1960 until the mid-1980s (if we exclude the war years) and that we can explain the high level of, and trends over time in, Japan’s household saving rate via various socioeconomic and policy variables. This seems to suggest that the Japanese are not a saving-loving people and that their saving behavior is not governed by culture and social norms. Moreover, the bequest behavior of the Japanese suggests that they are less altruistic toward their children and less reliant on their children than other peoples, suggesting that the alleged social norm of strong family ties in Japan is largely a myth, and that the Japanese do not appear to be appreciably more concerned about the continuation of the family line or the family business than other peoples, suggesting that the influence of the “ie” (family) system is apparently not so pervasive either. However, we argue that these findings do not necessarily mean that culture and social norms do not matter.

Cohorts and wealth transfers: Generational changes in the receipt of inheritances, trusts, and inter vivos gifts in the United States

The intergenerational transfer of assets helps create and maintain wealth inequality over time, and cohort differences in these wealth transfers provide unique insights into the changing mechanisms that lead to inequality. We examine cohort differences in asset transfers in two ways. First, we explore whether there are general cohort differences. Second, we examine how transfers have changed across four specific U.S. birth cohorts. We draw on ideas from research on cohort succession processes to document differences across cohorts in financial resources, and we draw on work on bequest behavior to address how resource differences might lead to cohort differences in transfers. Using the Survey of Consumer Finances, we find that members of younger cohorts are less likely than members of older cohorts to receive any transfer but that younger recipients receive larger transfers. We also find that members of younger cohorts are less likely to receive inheritances and trusts, more likely to receive inter vivos gifts, and less likely to inherit at any age than members of older cohorts. Our findings underscore the importance of birth cohorts in studies of inequality and suggest that wealth inequality may worsen over time given that a smaller number of people are receiving large transfers.

Religious Affiliation and Bequest Behavior

Bequest behavior is a highly delicate and complex subject which requires considerable attention by researchers across all disciplines including economics, sociology and psychology. Studying the motives behind bequests becomes critical not only from a socio-psychological perspective but also from a policy perspective. This paper attempts to explore the socio- economic reasons which influence the intention to bequest focusing specifically on the effect of religious affiliation. This study uses survey data from India to test the hypotheses drawn from the anthropology, sociology and consumer behavior literature using logistic regression technique. The results indicate that self-interest negatively impacts the probability of leaving a legacy. Surprisingly, the study finds evidence for negative relationship between religious affiliation and leaving a bequest. This study also reveals that unmarried women are less likely to leave a bequest. Unlike in the philanthropic literature, the research could not find satisfactory evidence of altruism and social norms driving bequest behavior among Indians.

Legacies of homeownership: Housing wealth and bequests

This paper examines the effect of housing price shocks during the recent housing boom and bust on the bequest behavior of older homeowners. Prior studies find that illiquid assets have a strong expected influence on bequests, which suggests volatile housing markets will alter household bequest expectations, particularly since housing is generally the largest share of household wealth. I calculate shocks to housing wealth as the deviation in values from their growth trend over the last three years, and I exploit the geographic variation in housing market volatility to explore the relationship between housing value shocks and bequest expectations over the housing boom and bust. I find that housing price shocks, and especially negative shocks, have a consistent influence on bequest expectations for homeowners, particularly for older homeowners, and for those without stocks. A complementary analysis of elasticities also reveals a larger influence of housing values on bequests than other forms of wealth.

Are the Japanese Unique? Evidence from Household Saving and Bequest Behavior

In this paper, we attempt to shed light on whether Japanese households are rational or if their behavior is influenced by culture and social norms by examining their saving and bequest behavior. To summarize our main findings, we find that Japan’s household saving rate showed great volatility, was often low and even negative, and was high only during the 25-year period from around 1960 until the mid-1980s (if we exclude the war years) and that we can explain the high level of, and trends over time in, Japan’s household saving rate via various socioeconomic and policy variables. This seems to suggest that the Japanese are not a saving-loving people and that their saving behavior is not governed by culture and social norms. Moreover, the bequest behavior of the Japanese suggests that they are less altruistic toward their children and less reliant on their children than otherpeoples, suggesting that the alleged social norm of strong family ties in Japan is largely a myth, and the Japanese do not appear to be appreciably more concerned about the continuation of the family line or the family business than other peoples, suggesting that the influence of the “ie” system is apparently not so pervasive either. However, we argue that these findings do not necessarily mean that culture and social norms do not matter.

Bequests and family traditions: the case of nineteenth century France

Like father, like son: is the bequest behavior of children “inherited” from that of their parents? Most economic models (altruistic, paternalistic or exchange models) postulate that bequest behavior does not depend per se on parents’ behavior. Yet because of data limitations, few empirical studies have analyzed the link between bequests left and inheritances received. In this paper, we evaluate the effect of inheritance relative to lifetime income on the amount that individuals bequeath, in the case of France. This study uses original historical data including wealth genealogies covering the nineteenth and first half of the twentieth centuries for the Loire Inferieure departement. Empirical evidence suggests that the propensity to bequeath is much greater for inheritance than for human resources: a deceased having inherited twice the average wealth leaves 35–60 % more to his own heirs that the average for his generation. In nineteenth century France, bequests are explained more by inheritance received than by personal savings per se.

Bequests, Inheritances and Family Traditions

Do influence bequest behavior? If an individual receives an inheritance from his parents, is he more likely to give a bequest to his children, even after controlling for the boost in wealth conferred by the inheritance? Family traditions are pertinent to a host of issues connected with intergenerational transfers: Ricardian equivalence and crowding out, the role of bequests in wealth accumulation, and the responsiveness of bequests to tax changes. Traditions also matter for issues related to behavioral economics, such as mental accounts, social learning, and the intergenerational transmission of values. Partially due to the paucity of data, few studies to date have analyzed bequests in conjunction with inheritances. We draw upon the U.S. Health and Retirement Survey, one of the few data sets with comprehensive information on both bequests and inheritances. We find that receipt of inheritances and intended bequests are positively and significantly related (both behaviorally and statistically) even after controlling for a host of household characteristics, most importantly household net worth. Discerning how to label this partial correlation is a daunting task. We provide a precise definition of and we show how they differ from other channels of influence. Our explanation of the nuances of traditions hinges on measuring the flexibility of bequest plans when wealth or other circumstances change. (For instance, will a wealth shortfall have a smaller impact on an inheritor who may be attempting to carry on a family tradition?) We find evidence in support of the idea that the propensity to bequeath out of wealth differs depending upon whether current wealth is large or small relative to inheritances received. We conclude that economists interested in intergenerational transfers should pay attention to the role of family traditions in bequest behavior.

The Widow's Offering: Inheritance, Family Structure, and the Charitable Gifts of Women

This paper aims to explain disparities in the charitable bequest behavior of men and women. I use data on charitable bequests in wills from 17th Century Suffolk, England to investigate whether women or men were more generous to the poor when they died. Because of the difference in the legal restrictions faced by married men and married women, I choose to compare unmarried individuals. Higher proportions of unmarried men make charitable donations and men make higher average donations. I find that differences in the wealth, circumstances and family status of women can explain between 58% and 99% of the gap in the donation rate. In addition, I find that women's attributes serve to depress their average donations. Based on these finding I conclude that women were not less generous than men despite the fact that a low proportion of total donations came from women.

Bequest motives: a comparison of Sweden and the United States

This paper reviews four well-known theoretical models of private bequest behavior, notes their differing implications for public policy, and discusses a way of empirically discriminating among them. Then it implements the test with micro data from Sweden (LLS) and the U.S. (PSID). The so-called altruistic (or dynastic) model, which, among the four models, has perhaps the most wide-ranging implications for policy, receives some support. The sign pattern is as the model predicts, while the magnitude is much smaller than the altruistic theory implies. There is evidence of a potential complication due to a dependence of children’s education on parents’ financial status in the case of the U.S.

Post mortem reputation, compensatory gifts and equal bequests

Suppose that gifts are private information, only known to donor and donee, while bequests are public. Also suppose that parents care about the reputation that their bequest behavior will give them and that reputation deteriorates with the difference in amounts inherited. Then the optimal choice of altruistic parents is compensatory gifts and equal bequests. This is also what data show.

Death and the Transfer of Wealth: Bequest Patterns and Cultural Change in the Eighteenth Century

The paper examines bequest patterns in eighteenth-century central Europe. Based upon a sample of 2800 Austrian wills, it investigates the factors determining bequests given to various groups of recipients, such as family members, relatives, friends, and servants, as well as to charity. The results suggest that the family environment of the testators, their professions, the circumstances under which the wills were made, and independent long-term changes in mentality worked in specific ways for the different groups of recipients. Apart from these effects, bequest behavior shows two general characteristics: when choosing an heir, testators usually select either their spouse or their children, but not both at the same time; and testators giving legacies to recipients outside their family usually choose relatives, friends, servants, and charitable institutions in equal measure. Charitable legacies decline in both frequency and value during the eighteenth century. It has been suggested that this was due to a transformation in family customs such that families would increasingly and voluntarily shoulder duties that had been determined by will in earlier times. This hypothesis is not supported by the data used in this analysis.

Sustainable Forestry: Timber Bequests, Future Generations and Optimal Tax Policy

This paper analyzes harvesting and timber bequest behavior in a two-period overlapping generations model where the government uses site productivity, yield and inheritance taxation. The ceteris paribus effects of forest and inheritance taxes are derived first, then the paper discusses the optimal design of forest and inheritance taxes by assuming that intergenerational externalities are either absent or operative. In the absence of intergenerational externalities, it is optimal to use only the site productivity tax, and not to introduce yield and inheritance taxes at all. In the presence of intergenerational externalities the situation changes. The paper demonstrates that the externality can be internalized by introducing either a yield tax or an inheritance subsidy, or both. If the government is able to use both at the same time, it is desirable to use the yield tax to 'punish' excessive harvesting and an inheritance subsidy to 'bribe' to give bequests.

Gender Bias, Investments in Children, and Bequests

The impacts of pure sex preference and differential earnings opportunities by gender on investments in children are modelled with altruism. If bequest constraints do not bind human investments are privately efficient, with the higher-earning gender receiving more education. Education does not depend on parental wealth. The gender differential in bequests is ambiguous, however, even in this case. When bequest constraints bind education may depend on wealth and it is also possible for the gender with better earnings opportunities to get less education. The model is tested with data from Philippine villages where bequest constraints are generally nonbinding. The schooling differential slightly favors daughters. Estimated bequest behavior, however, reflects pure sex preference in terms of our model. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Capital Accumulation and Uncertain Lifetimes with Adverse Selection

This paper examines the implications of adverse selection in the private annuity market for the pricing of private annuities and the consequent effects on constrption and bequest behavior. With privately known heterogeneous mortality probabilities, adverse selection causes the rate of return on private annuities to be less than the actuarially fair rate based on population average mortality. However, a fully funded social security system with compulsory participation can offer an implied rate of return equal to the actuarially fair rate based on population average mortality. Thus, since social security offers a higher rate of return than private annuities, consumers cannot completely offset the effects of social security by transacting in the private annuity market. Using an overlapping generations model with uncertain lifetimes, we demonstrate that the introduction of actuarially fair social security reduces the steady state rate of return on annuities and raises the steady state levels of average bequests and average consumption of the young. The steady state national capital stock rises or falls according to the strength of the bequest motive.