A version of the overlapping-generations model suggests that an increase in the rate of innovation alters capital formation in favor of schooling and other human capital at the expense of physical capital, and tends to reduce total savings, defined as human investments plus financial savings. The theoretical explanation suggests that relative capital formation in human beings, but not necessarily absolute capital formation, is positively associated with the degree of innovation. Analysis of U.S. time-series data supports the hypotheses advanced in the paper.

A theory of personal wealth transfers is developed which implies that components given to a recipient, such as education and bequests, are perfect substitutes. Therefore, components whose marginal cost rises more rapidly than average reveal wealth elasticities that are smaller than average. For related reasons, time series elasticities are expected to fall short of cross-sectional elasticities. An empirical investigation estimates cross-sectional wealth elasticities of gifts and bequests and time series wealth elasticities of bequest. The estimates are ranked in the order that is anticipated from the theory.

A version of the overlapping-generations model suggests that an increase in the rate of innovation alters capital formation in favor of schooling and other human capital at the expense of physical capital, and tends to reduce total savings, defined as human investments plus financial savings. The theoretical explanation suggests that relative capital formation in human beings, but not necessarily absolute capital formation, is positively associated with the degree of innovation. Analysis of U.S. time-series data supports the hypotheses advanced in the paper.