[The implications for efficient allocation of parents' inability to force transfers among siblings are explored. When there are differences in abilities of children within families, such transfers may be necessary to achieve a first-best solution. In the absence of such transfers, a tax on earned income and a subsidy to inheritance are useful second-best tools, whereas subsidies to investments in human capital or physical capital are not desirable.]

The consequences of interfamily bequests and endogenous population size for optimal and competitive population sizes and bequests are explored when individuals' utility is a function of own consumption, the number of children, and the welfare of their children. When a bequest benefits each member of a second-generation family, we show that competition leads to underprovision for future generations. Under a separability assumption, the number of children is also shown to be too large.