Bequests, Fertility, and Barriers to Entrepreneurship: The Intergenerational Transmission of Economic Inequality
SEA 2024 Graduate Student Award
Abstract · Paper (PDF) · Slides
This paper studies how parents' fertility and bequest decisions jointly shape their children's access to entrepreneurship under borrowing constraints. While the existing literature on intergenerational inequality emphasizes bequests, it largely abstracts from how fertility choices dilute per-child bequests and thereby affect entrepreneurial opportunities. I develop an overlapping-generations model with endogenous fertility, bequests, and occupational choices, calibrated to U.S. data. The model shows that fertility-induced dilution of per-child bequests interacts with borrowing constraints to distort entrepreneurial entry and generate aggregate misallocation. Eliminating borrowing constraints in the U.S. raises income per capita by 13 percent but disproportionately benefits high-productivity firms, whose expansion raises the equilibrium interest rate and crowds out marginal entrepreneurs, while higher asset returns increase inequality and reduce intergenerational mobility.