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A family investment model for intergenerational elasticity

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  • Lo, Simon M.S.

Abstract

We use a family investment model to explain intergenerational income elasticity (IGE) through three transmission channels: parents’ financial investments, human capital, and family backgrounds. We distinguish between shareable (public) and non-shareable (private) financial resources, of which the relative roles change with children’s gender. Removing the indirect effects caused by parents’ human capital significantly reduces the actual IGE from 0.32 to 0.20, indicating weak intergenerational income persistence. New findings are obtained regarding the externality of family size, substitutability of parents’ human capital, relative roles of fathers’ and mothers’ human capital, and assortative mating in the IGE.

Suggested Citation

  • Lo, Simon M.S., 2025. "A family investment model for intergenerational elasticity," Journal of Economic Behavior & Organization, Elsevier, vol. 238(C).
    • Handle: RePEc:eee:jeborg:v:238:y:2025:i:c:s0167268125003324
    DOI: 10.1016/j.jebo.2025.107213
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