Measuring Time Preference and Parental Altruism: Technical Paper 2000-7
Working Paper
This paper extends a heterogeneous agent overlapping generations model by implementing bequests and measures the degrees of time preference and parental altruism through the calibration of the model to the U.S. economy.
This paper extends a heterogeneous agent overlapping generations model by implementing bequests-both altruistic and accidental-and measures the degrees of time preference and parental altruism through the calibration of the model to the U.S. economy. In this model, a parent household and its adult child households behave consistently and strategically to determine their optimal consumption, working hours, and savings. Based on the obtained parameters, the paper also shows the individual effects of altruistic and accidental bequests on wealth accumulation by examining the impacts of a 100 percent estate tax and a perfect annuity market in the model. To match the economy's capital-output ratio and the relative size of bequests observed in the United States, the parent household would have to discount its children's utility by about 30 percent relative to its own utility, according to the model. The model suggests that total bequests contribute about 14 percent to wealth accumulation in a closed economy and 21 percent in a small open economy. Also, the effect of a perfect annuity market depends on the degree of parental altruism in the economy.
