Bequeathing Illiquid Assets across Generations in an Aging Society

Project Start:01/2016
Researchers:Holger Kraft, Farina Weiss
Category: Household Finance, Financial Markets
Funded by:LOEWE

The funding of this project ended in Dec 2018. Unfortunately, Farina Weiss was on sick leave parts of 2018 and 2019 and is currently hospitalized again. Although we have worked on the project during the funding period, there is no finished working paper that can be presented. Due to the circumstances, we stopped working on the project.



It has been documented that a transition in demographics has a significant influence on asset prices (Abel (2003), Constantinides et al. (2002) and Garleanu and Panageas (2014)). Most papers, however, disregard the optimal consumption-investment decision of individual agents or impose very restrictive assumptions. The two largest assets for many individuals are human capital and the residential property owned and occupied by the individual. Both assets should be incorporated into the consumption-investment decision of an individual. Starting with Merton (1969, 1971) the consumption-portfolio choice problems of an individual has been studied extensively over the last decades. Both labor income and housing are incorporated into the dynamic consumption and portfolio decisions (see, e.g., Kraft and Munk (2011)). In this setup only the consumption-investment decision of an individual or household over the life-cycle is considered. We extend this partial equilibrium approach to generate a general equilibrium model.