Intergenerational transmission of preferences and the operativeness of bequest motive

Abstract

We analyze the implications of dynastic altruism in an overlapping generations (OLG) model with consumption externalities and where parents influence their children's concern for relative standing in consumption through their saving behavior. The degree of altruism for which individuals leave bequests can be both larger or smaller than in an economy without intergenerational transmission of preferences. The optimal allocation exhibits a stationary capital stock larger than the one corresponding to the economy without transmission of preferences. Even when the bequest motive is operative, the intertemporal allocation is suboptimal. We characterize the optimal policy under the two regimes of the bequest motive.