By Mariacristina De Nardi and Fang Yang
Households hold vastly heterogeneous amounts of wealth when they reach retirement, and differences in lifetime earnings explain only part of this variation. This paper studies the role of intergenerational transmission of ability, voluntary bequest motives, and the recipiency of accidental and intended bequests (both in terms of timing and size), in generating wealth dispersion at retirement, in the context of a rich quantitative model. Modeling voluntary bequests, and realistically calibrating them, not only generates more wealth dispersion at retirement and reduces the correlation between retirement wealth and lifetime income, but also generates a skewed bequest distribution that is close to the one in the observed data.
My take-aways from this paper are: 1) Understanding the heterogeneity of wealth accumulation is very difficult and involves multiple dimensions; 2) Among those, voluntary bequests play an important role; 3) We need to learn much more about voluntary bequest motives. The latter point is crucial, otherwise it just becomes a free parameter that can explain anything, like preference shocks are too often.