Bequest Motives in Consumption-portfolio Decisions with Recursive Utility

Holger Kraft*, Claus Munk, Farina Weiss

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


This paper studies finite-horizon consumption-portfolio decisions with recursive utility. We show that the parameter seemingly representing the individual’s bequest preference in traditional recursive utility formulations is quantitatively and qualitatively misleading. The parameter value is uninformative about the optimal bequest which, in some cases, is even inversely related to the magnitude of the apparent bequest weight. We argue that the ratio between optimal bequest and the optimal consumption rate just before the terminal date is a much better representation of the strength of the bequest motive. Numerical examples illustrate the pitfalls using the traditional specification and clarifies how the bequest preference affects optimal decisions and the life-cycle patterns of consumption and wealth assuming constant investment opportunities or stochastic interest rates. We show that the typical utility representation for a unit elasticity of intertemporal substitution actually assumes a strong bequest preference.
Original languageEnglish
Article number106428
JournalJournal of Banking & Finance
Number of pages15
Publication statusPublished - May 2022

Bibliographical note

Published online: 3 February 2022.


  • Consumption-portfolio choice
  • Life-cycle decisions
  • Terminal condition
  • Weight on bequest
  • Epstein-Zin utility

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