Putting on Heirs

Putting on Heirs

Putting on Heirs

How the dismal science applies to your life.
Nov. 8 1996 3:30 AM

Putting on Heirs

How parents decide about divvying up the loot.

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Metaphors, like magic tricks, may dazzle through deceit. Take, for example, the recurring metaphor of society as an extended family (a particular favorite among those who aspire to be the head of the household). The accompanying patter goes like this: Families do not allow one member to prosper while another struggles; ergo, we need something like a bigger welfare system or a more progressive tax code.

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Note the rhetorical sleight of hand. While you were still pondering whether society is really like a family, I slipped in the wholly invented "fact" that families take from the rich and give to the poor. The truth, at least as it is revealed by last wills and testaments, is otherwise. Apparently, among the children, even when some children are much wealthier than others. A bequest is a final opportunity to redistribute income among those you love the most; if most parents reject that opportunity, then it's pretty hard to see anything "familial" in using the tax system to redistribute income among strangers.

B ut bequests aren't the only economic transactions within families. Does the family function as a welfare state in other ways? What about schooling? Let's think about that. Who would you rather send to college: your smart kid, who can make the most of an education, or your dumb kid, who needs all the help he can get? The answer--even if you have an egalitarian impulse to pour resources into the dumb kid--is to send the smart kid to college and make it up to the dumb kid through bequests (or other cash gifts). That strategy maximizes total family income, which allows you to do more good for both your children. So, even if parents really wanted to equalize their children's incomes, they.

If not schooling, then what about time and attention? At least in large families, the big winners in the time-and-attention sweepstakes are the firstborns and the lastborns--those who get to spend a few years as an only child. The middle siblings perform significantly worse on sixth-grade. This suggests that time and attention are valuable in much the same way that schooling is, and that they are, therefore, equally unsuitable as a medium for redistribution. So, the general rule is that if people wanted to redistribute among offspring, they'd do it through bequests.

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A n exception might be poor families, where bequests are insubstantial. In those circumstances, lavishing the less-skilled children with schooling, time, and attention might be the only way to transfer income in their direction. This exception, incidentally, could explain why programs like Head Start are disappointingly ineffective: When little Johnny is accepted into the Head Start program, his parents compensate Johnny's brothers and sisters by spending more time with them and less with Johnny. There's a nice irony here. By and large, the folks who want to argue that most people are instinctively redistributionist are the same folks who want to argue for the efficacy of programs like Head Start. But the stronger the redistributionist instincts of Johnny's parents, the less he'll gain from the Head Start program.

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Returning to the general rule, the best way to redistribute income is through bequests. But parents don't use bequests to redistribute income. We are entitled to conclude that parents don't consider redistributing income to be terribly important. That leads to a natural follow-up question: What do parents consider terribly important? How do they decide what to leave to whom?

I like the theory that parents believe there is something intrinsically fair about giving equal amounts to everyone. But to test that theory, we'd need to know more about the distribution of parental gifts--like schooling, time, and attention--during the parents' lifetime. I don't know whether my pet theory would survive that test.

An alternative theory is that a bequest is a mistake. According to this theory, parents would prefer to spend everything they've got before they go. The only reason there's anything left over is that death arrives unexpectedly. But if this alternative were correct, we'd see old people using all their savings to purchase annuities that pay them a guaranteed income for life. The limited market for such annuities suggests that people prefer to leave something behind.

Yet another theory is that parents are governed by a "strategic bequest motive," using their estates to purchase attention from their grown children. The threat of disinheritance keeps those children in line; when the threat is effective, nobody is actually disinherited. If this theory were true, you'd expect parents with a lot of bequeathable wealth (stocks, bonds, etc.) to get far more visits from their children than parents with an equal amount of nonbequeathable wealth (such as pensions). That prediction and found accurate, which is one good reason to believe the theory.

Parallel to the strategic bequest motive, we can hypothesize a "strategic gift motive" that operates while the parents are still alive. Those children who are struggling, and hence more likely to burden their parents (say, by returning to live with them), get extra help in the hope that they (the children) will become self-sufficient. (As a variation on this theme, one can imagine a "strategic schooling motive," whereby the least-accomplished children get extra schooling, in the hope that they will become more interesting to converse with.) At bequest time, the strategic gift motive would evaporate, and the favored child would be favored no longer.

Bequest motives interact with economic policy in surprising ways. The effects of a deficit-financed tax cut can depend on whether most parents are altruistic or strategic. Altruistic parents would save the money from their tax cuts and leave it to the children, who must pay off all that government debt someday; that saving would hold interest rates down. Strategic parents might spend a large portion of their tax cuts, causing interest rates to rise.

It's that interaction with fiscal policy that has drawn economists' attention to bequest motives in recent years. But a deeper reason for investigating bequests is that they reveal something about people's instinctive sense of justice. That instinctive sense is the best guide we have to economic policy in every sphere.