Bequests and the Life Cycle Model

Abstract

The standard life cycle model emphasizes a household’s concerns over events within its lifetime, including providing for its own retirement and for its young children. However, in a more elaborate formulation, the household may care about its descendants when they are grown just as when they are young, causing the household to want to leave bequests. Its time horizon may expand to a dynastic scale, and new public policy implications, including so-called Ricardian neutrality, may emerge. Alternatively, bequests may signal non-market exchanges between parents and their adult children, perhaps arising to mitigate transactions costs or informational asymmetries.