Working Paper: NBER ID: w11122
Authors: George M. Constantinides; John B. Donaldson; Rajnish Mehra
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.
Keywords: bequests; asset pricing; equity premium; overlapping generations model
JEL Codes: D91; D1; E2; E60; G11; G13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bequest motive (D64) | security prices (G12) |
| magnitude of households' bequests (D14) | prices and returns of securities (G12) |
| higher preference for bequests (D14) | equity premium (G12) |