Transfers and bequests: a portfolio analysis in a Nash game

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.