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Economic Interpretations of Intergenerational Correlations

  • Nathan D. Grawe
  • Casey B. Mulligan

Since accurate prediction ultimately determines the usefulness of theory, our paper gives the reader a taste of some predictions derived from economic theory and some empirical successes and failures. We provide only a taste, because there are a great many economic models relevant to intergenerational correlations — such as models of educational attainment, neighborhood effects in schooling, family formation and fertility choice, occupational choice and discrimination — and quite a variety of predictions that might be derived from these models. However, a simple model of investment and intergenerational decision making can be interpreted as a conceptual aggregation of many more detailed economic models. We present such a model and from it derive one class of predictions that has received substantial attention in the empirical literature — the role of endowments and credit markets in determining intergenerational correlations.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533002760278703
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 16 (2002)
Issue (Month): 3 (Summer)
Pages: 45-58

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Handle: RePEc:aea:jecper:v:16:y:2002:i:3:p:45-58
Note: DOI: 10.1257/089533002760278703
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