A Theory of Intergenerational Mobility

Abstract

We develop a model of intergenerational resource transmission that emphasizes the link between cross-sectional inequality and intergenerational mobility. By drawing on first principles of human capital theory, we derive several novel results. In particular, we show that, even in a world with perfect capital markets and without differences in innate ability, wealthy parents invest, on average, more in their offspring than poorer ones. As a result, persistence of economic status is higher at the top of the income distribution than in the middle. Successive generations of the same family may even cease to regress towards the mean. Moreover, we demonstrate that government interventions intended to ameliorate inequality may in fact lower intergenerational mobility-even when they do not directly favor the rich. Lastly, we consider how mobility is affected by changes in the marketplace.

Inequality and Mobility: Gatsby in the Americas

“…Imperfect credit markets make it difficult low-income parents to invest in their children's education so inequality and lack of mobility persist. Aiyagari et al [13] suggest the problem goes beyond market failure because parents tend to invest in all their children not just those with the best test scores, why Gary Solon's [14] retooling of Becker and Tomes [38] highlights the role of progressive education spending, a factor we find is key in Latin America (but see Becker et al [15] who argue that progressive government education programs may actually reduce mobility, a proposition we test indirectly in a longer version of this paper) 2 . As Andersen [16] points out another advantage of using educational attainment across generations is that it manifests itself sooner.…”

“…De Janvry et al [24] find these programs had direct effects on poverty and school attendance especially during crises, but they also signaled a shift in social priorities which Aiyagari et al [13] suggest is important for guiding parent's investment in children even if credit markets were complete (which they are not in Latin America). 2 In a 2015 working paper presented by his coauthors at a conference honoring Gary Becker posthumously, Becker et al 2015 [15] argue that "government interventions intended to ameliorate inequality may in fact lower intergenerational mobility, even when they do not directly favor the rich. Government programs that are complementary to parental inputs crowd-in (rather than crowd-out) out investments by parents.…”

Study of the Nature of Modern Economic Crises

“…This problem is widely discussed in the scientific literature. The main fields of study on the problem of threats to the world economy are represented, for example, in the works [4,5,11,12,13]. The problems related to the levels of transparency of the economies are considered in the work of Kaurova [4]; Kobyakov and Khazin [5]б study in detail the role of high technology in the world economy; Soros [11] analyzes some sources of global threats deriving from the motives of behavior of the market participants.…”

“…The problems related to the levels of transparency of the economies are considered in the work of Kaurova [4]; Kobyakov and Khazin [5]б study in detail the role of high technology in the world economy; Soros [11] analyzes some sources of global threats deriving from the motives of behavior of the market participants. The growing role of psychological factors and related threats are considered in the scientific works of Becker [12], awarded with the Nobel Prize in 1992. The role of electronic commerce for entrepreneurial business orientation is considered in the article of Abebe [13]; the role of contractual relations and the financial aspects of international trade are studied in the articles of Beamish [14] and Beck [15], respectively.…”

Smoothing or strengthening the ‘Great Gatsby curve’? The intergenerational impact of China’s New Rural Pension Scheme

“…Furthermore, intergenerational mobility models predict that intragenerational wealth inequality can persist into the next generation by bequests (De Nardi 2004) and parental investment into children's education and health (Becker et al 2015). 1 Ambiguities in filial outcomes surface again when pensions are taken into account in parental decision-making.…”