Bequest motive
Encyclopedia
A bequest motive seeks to provide an economic justification for the phenomenon of gratuitous, intergenerational transfers of wealth. In other words, to explain why people leave money behind when they die.
The most common explanation for this is altruism
, in which it is held that the disponer gains some form of satisfaction from knowing that his/her heirs will enjoy their inherited wealth. An example might be a parent leaving a child the family home.
Another common explanation is accidental bequest, developed by economists Yaari (1965) and Davies (1980). Here it is not assumed that the disponer gains any specific benefit from leaving a bequest, but rather that lifetime is uncertain, and so she/he holds precautionary savings
to insure him/herself against the risk of living too long.
Finally, exchange bequest occurs where disponers engage in a sort of strategic game
in which potential beneficiaries must render a (non-marketable) service in exchange for the promise of inherited wealth. The most widely read model of exchange bequest was published by Bernheim, Summers and Shleifer (1985).
Which bequest motive theory most realistically represents the intentions of estate planners is unclear. Attempts to test the theories empirically are mired by poor availability of data about wealth holdings.
The most common explanation for this is altruism
Altruism
Altruism is a concern for the welfare of others. It is a traditional virtue in many cultures, and a core aspect of various religious traditions, though the concept of 'others' toward whom concern should be directed can vary among cultures and religions. Altruism is the opposite of...
, in which it is held that the disponer gains some form of satisfaction from knowing that his/her heirs will enjoy their inherited wealth. An example might be a parent leaving a child the family home.
Another common explanation is accidental bequest, developed by economists Yaari (1965) and Davies (1980). Here it is not assumed that the disponer gains any specific benefit from leaving a bequest, but rather that lifetime is uncertain, and so she/he holds precautionary savings
Precautionary savings
Precautionary savings occurs in response to uncertainty regarding future income. The precautionary motive to delay consumption and save in the current period rises due to the lack of completeness of insurance markets. Accordingly, individuals will not be able to insure against some bad state of the...
to insure him/herself against the risk of living too long.
Finally, exchange bequest occurs where disponers engage in a sort of strategic game
Game
A game is structured playing, usually undertaken for enjoyment and sometimes used as an educational tool. Games are distinct from work, which is usually carried out for remuneration, and from art, which is more often an expression of aesthetic or ideological elements...
in which potential beneficiaries must render a (non-marketable) service in exchange for the promise of inherited wealth. The most widely read model of exchange bequest was published by Bernheim, Summers and Shleifer (1985).
Which bequest motive theory most realistically represents the intentions of estate planners is unclear. Attempts to test the theories empirically are mired by poor availability of data about wealth holdings.