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The intersection of the standard altruism hypothesis with the quite strong evidence that bequests tend to be equal suggests that inter-vivos transfers should be strongly compensatory. Yet the available evidence is not in congruence with this implication. It has therefore been inferred that the motive underlying inter-vivos transfers is not parental altruism. In this paper we present an argument showing why parents who are equally altruistic toward their children optimally transfer more to the child whose earnings are higher. We show that rather than being orthogonal to parental altruism, counter-compensating transfers emanate from such altruism. A key point in the analysis is that parents and children are interlinked in a rich web of (vertical and possibly horizontal) transfers, reverse transfers, direct transfers, and indirect transfers.

The large amount of equal division of bequests by parents who otherwise would have compensated the earning differences among their children is attributed to the cost associated with unequal bequests. This paper identifies a source of this cost and explains why equal bequests to children whose earnings differ, and parental altruism toward these children, are not mutually exclusive.