DEATH AND CAPITAL

Abstract

In a life-cycle model with dynastic households, parents value the transfer of tangible assets to their offspring in the event of premature death. This raises the subjective reward from investing in them relative to intangible human capital and tilts investment choice away from the latter. These effects of mortality on human capital risk and relative investment can translate into divergent growth paths, delayed transition from physical to human capital accumulation, and a dampened response to mortality shock in developing countries.