Bequests as Signals: An Explanation for the Equal Division Puzzle

In the United States, more than two-thirds of decedents with multichild families divide their estates exactly equally among their children. In contrast, intra vivos gifts are usually unequal. These findings challenge the validity of existing theories regarding the determination of intergenerational transfers. In this paper, we develop a theory that accounts for this puzzle, based on the notion that the division of bequests provides a signal about a parent’s altruistic preferences. The theory can also explain the norm of unigeniture, which prevails in other societies. (JEL D10, H31) ∗Bernheim: Department of Economics, Stanford University, Ralph Landau Building, Stanford, CA 94305, [email protected]; Severinov: Department of Economics, University of Wisconsin, 1180 Observatory Dr., Madison, WI 53706, [email protected]. Seminar participants at the National Bureau of Economic Research, Stanford University, the University of Wisconsin-Madison, Washington University, St. Louis, and Penn State University, provided helpful comments. We thank Katherine Carman for able research assistance, and the NSF for financial support through grant number SBR9511321.