Productivity-Rent Effects in Intergenerational Transfers: Education versus Bequests

Sylwia Radomska

No 115, GRAPE Working Papers from GRAPE Group for Research in Applied Economics

Abstract: This paper studies optimal intergenerational transfers when altruistic parents can transfer resources to their children through financial bequests or through investment in human capital. The key distinction is that education is a productive transfer: it changes the mapping from privately observed ability to output, whereas bequests are budgetary transfers. The paper characterizes how this distinction affects information rents in a dynastic Mirrlees environment. The main result is a decomposition of the informational effect of education relative to bequests. With endogenous labor supply, both instruments affect incentive provision through marginal-utility and labor-supply responses. Education, however, generates an additional productivity-rent component governed by the cross-partial between ability and human capital in production. This component is absent for purely budgetary transfers. When ability and human capital are sufficiently complementary, the productivity-rent component can dominate the standard labor-requirement channel, so that education may be optimally distorted downward relative to the bequest margin. The analysis clarifies why education and bequests are not equivalent instruments of intergenerational redistribution. The difference is not only that education has risky returns, but also that it changes the sensitivity of output to privately observed ability. This distinction provides a force that can work against the standard education-subsidy logic in Mirrlees models.

Keywords: optimal taxation; intergenerational transfers; human capital; financial bequests; private information; education wedge; ability risk. (search for similar items in EconPapers)
JEL-codes: D64 D82 H21 H24 I26 J24 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2026
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations:

Downloads: (external link)
https://grape.org.pl/WP/115_Radomska_website.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fme:wpaper:115

Access Statistics for this paper

More papers in GRAPE Working Papers from GRAPE Group for Research in Applied Economics Contact information at EDIRC.
Bibliographic data for series maintained by Jan Hagemejer ().