Inheritance and the Distribution of Wealth

next are a major cause of inequality in general and of the unequal distribution of wealth in particular. Despite the popularity, not to say antiquity, of this view, surprisingly little is known about the nature and extent of these transfers (here called bequests, but interpreted to include gifts inter vivos) or about their motivation. Similarly, models of saving and accumulation have tended to be somewhat cavalier about bequests, either assuming them away altogether or treating them in an ad hoc fashion, for example, by tacking an arbitrary of on to a life-cycle model. It seems more satisfactory to derive bequest behaviour as part of the solution to some more general optimum problem. The most obvious framework for this approach is one in which individuals are altruistically motivated with respect to their children, and will choose to make bequests if, for example, they expect that the children would otherwise have markedly lower lifetime consumption than their own. Recently, several models of this dynastic-consumption equalizing type have been constructed (e.g. Bevan, 1974; Flemming, 1976, 1979; Stiglitz, 1977). In each case the intention of the models is to explore the functional dependence of the equilibrium distributions of wealth and consumption on the distribution of lifetime earnings. This paper is in that tradition. The present model is designed to study how the inter-generational transmission of inequality is affected by inter-generational earnings mobility, asymmetry between positive and negative bequests, the strength of parental altruism, the elasticity of the marginal utility of consumption and the return on wealth. The paper also examines whether the predictions generated by a model of this type are broadly consistent with what is actually observed. The first two considerations pose particular problems of analysis. Inequality may be transmitted by transfers of human wealth as well as by transfers of the material kind, and these two mechanisms are interrelated. Unless intergenerational mobility is perfect there will be some inter-generational link in earnings; hence high-earning individuals will choose a level of bequests in the expectation that their children may themselves be relatively high earners. The interesting question concerns how sensitive the wealth distribution is to different degrees of inter-generational earnings mobility. The sources of that mobility are, in the present analysis, less important than its extent, subject at least to the assumption that individuals cannot much alter the latter by manipulating the former. In what follows it is assumed that transfers of human wealth are entirely unplanned while those of material wealth are entirely planned.' The asymmetry between positive and negative bequests has two aspects. Suppose it seems desirable to an individual that some degree of consumption equalization takes place, but that this involves transfers to him from his children. Can he make a negative bequest? In general he can do so only with the active