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Intergenerational Transmission of Risk Preferences, Entrepreneurship, and Growth

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  • Fabrizio Zilibotti

    (University of Zurich)

  • Matthias Doepke

    (Northwestern University)

Abstract

We develop a theory of the intergenerational transmission of risk preferences. Parents can instill either risk tolerance or risk aversion in their children, and face both altruistic and paternalistic motives in this process. Risk-tolerant children are more likely to benefit from profitable but risky opportunities, such as the career choice of being an entrepreneur. However, risk-tolerant children may also engage in other risky choices (such as smoking or riding motorcycles) that the parents disagree with. In our model, the transmission of risk preferences feeds back into the growth rate of the economy, because risk-taking entrepreneurs are essential for endogenous technological innovation. The theory has implications for how the extent and nature of risk in the economic environment affects the transmission of risk preferences, entrepreneurship, and growth.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 246.

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Date of creation: 2012
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Handle: RePEc:red:sed012:246

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  1. van Praag, C M & Cramer, J S, 2001. "The Roots of Entrepreneurship and Labour Demand: Individual Ability and Low Risk Aversion," Economica, London School of Economics and Political Science, vol. 68(269), pages 45-62, February.
  2. Guido Tabellini, 2005. "Culture and Institutions: Economic Development in the Regions of Europe," CESifo Working Paper Series 1492, CESifo Group Munich.
  3. Galor, Oded & Michalopoulos, Stelios, 2012. "Evolution and the Growth Process: Natural Selection of Entrepreneurial Traits," IZA Discussion Papers 6327, Institute for the Study of Labor (IZA).
  4. Hugo A. Hopenhayn & Galina Vereshchagina, 2003. "Risk Taking by Entrepreneurs," RCER Working Papers 500, University of Rochester - Center for Economic Research (RCER).
  5. Booth, Alison L. & Nolen, Patrick, 2009. "Gender Differences in Risk Behaviour: Does Nurture Matter?," CEPR Discussion Papers 7198, C.E.P.R. Discussion Papers.
  6. Matthias Doepke & Fabrizio Zilibotti, 2005. "Social Class and the Spirit of Capitalism," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 516-524, 04/05.
  7. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  8. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May.
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