Bequests as a heir "discipline device"

This paper develops a model of inter vivos gifts and bequests in a setting of moral hazard and adverse selection. Altruistic parents do not perfectly know how much effort their children make to earn their living, nor do they know their true level of ability. Inter vivos gifts take place prior to the realization of the children`s earnings whereas at the moment of bequests, parents do observe them. We show that an optimal transfer policy generally uses a mix of inter vivos gifts - deemed as more efficient - and bequests - deemed as more redistributive. JEL classifications: J1, J13