Bequest Division and Income Inequality: Comparative Dynamics of Markov Branching Processes.

The purpose of this paper is to investigate the relationship between income inequality and bequest division rules, an old but untouched topic addressed by Sir Josiah Stamp nearly seventy years ago. We show that the bequest income transition rule for each child should be linearly combined to form an inter-generational income transition rule which dominates the dynamics of the underlying stochastic processes. The various bequest division rules correspond to different linear combinations of parent-child bequest transition, and hence distinct intergenerational mobility matrix. Under different assumptions about parents' information background, we derive conditions needed to establish the causal relationship between more equal bequest division and better income distribution in the sense of second-degree stochastic dominance. Copyright 1995 by The London School of Economics and Political Science.