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Transfers and bequests: a portfolio analysis in a Nash game

Annals of Finance volume 3, pages 277–295 (2007)Cite this article

Abstract

This paper develops a two-stage non-cooperative Nash game framework of parental–children interactions to explain the equal division puzzle in bequests. In the analysis, a portfolio approach is adopted for characterizing how altruistic parents allocate their inheritable wealth between inter-vivos transfers and post-mortem bequests. The model includes elements of strategic altruism, exchange of family-specific merit goods, transfer-seeking behavior by competing siblings, and parents’ “post-mortem reputation” in bequest division. Allowing for children’s heterogeneity and interactions, we find that inter-vivos transfers are unevenly distributed between the children, despite an equal degree of parental altruism. Moreover, we show the compatibility of unequal inter-vivos transfers and equal bequests, regardless of earnings differentials across children.

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Authors and Affiliations

  1. Department of Economics, Kansas State University, 319 Waters Hall, Manhattan, KS, 66506-4001, USA

    Yang-Ming Chang

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  1. Yang-Ming Chang
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Chang, YM. Transfers and bequests: a portfolio analysis in a Nash game. Annals of Finance 3, 277–295 (2007). https://doi.org/10.1007/s10436-006-0050-2

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  • DOI: https://doi.org/10.1007/s10436-006-0050-2

Keywords

  • Inter-vivos transfers
  • Post-mortem bequests
  • Sibling rivalry
  • Merit goods
  • Portfolio analysis

JEL Classification Numbers

  • D10
  • D31
  • D64