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Poor Little Rich Kids? The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviours

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  • Sandra E Black
  • Paul J Devereux
  • Petter Lundborg
  • Kaveh Majlesi

Abstract

Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors and we find little evidence that nature/nurture interactions are important. When bequests are taken into account, the role of adoptive parental wealth becomes much stronger. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth. We further build on the existing literature by providing a more comprehensive view of the role of nature and nurture on intergenerational mobility, looking at a wide range of different outcomes using a common sample and method. We find that environmental influences are relatively more important for wealth-related variables such as savings and investment decisions than for human capital. We conclude by studying consumption as an overall measure of welfare and find that, like wealth, it is more determined by environment than by biology.

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  • Sandra E Black & Paul J Devereux & Petter Lundborg & Kaveh Majlesi, 2020. "Poor Little Rich Kids? The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviours," Review of Economic Studies, Oxford University Press, vol. 87(4), pages 1683-1725.
  • Handle: RePEc:oup:restud:v:87:y:2020:i:4:p:1683-1725.
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    1. Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth By: Sandra E. Black ; Paul J. Devereux ; Petter Lundborg ; Kaveh Majlesi
      by maximorossi in NEP-LTV blog on 2015-08-04 17:42:40

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    Cited by:

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    2. Simon Halphen Boserup & Wojciech Kopczuk & Claus Thustrup Kreiner, 2018. "Born with a Silver Spoon? Danish Evidence on Wealth Inequality in Childhood," Economic Journal, Royal Economic Society, vol. 128(612), pages 514-544, July.
    3. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    4. Adrian Adermon & Mikael Lindahl & Daniel Waldenström, 2018. "Intergenerational Wealth Mobility and the Role of Inheritance: Evidence from Multiple Generations," Economic Journal, Royal Economic Society, vol. 128(612), pages 482-513, July.
    5. Bertrand Garbinti & Frédérique Savignac, 2020. "Accounting for Intergenerational Wealth Mobility in France over the 20th Century: Method and Estimations," Working papers 776, Banque de France.
    6. Andreas Fagereng & Magne Mogstad & Marte Rønning, 2015. "Why do wealthy parents have wealthy children?," Discussion Papers 813, Statistics Norway, Research Department.
    7. Winfried Koeniger & Julien Prat, 2018. "Human Capital and Optimal Redistribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 1-26, January.
    8. Iryna Kyzyma & Olaf Groh-Samberg, 2020. "Estimation of intergenerational mobility in small samples: evidence from German survey data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 151(2), pages 621-643, September.
    9. Iryna Kyzyma & Olaf Groh-Samberg, 0. "Estimation of intergenerational mobility in small samples: evidence from German survey data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 0, pages 1-23.
    10. Jing You & Miguel Niño-Zarazúa, 2017. "Smoothing or strengthening the ‘Great Gatsby Curve’? The intergenerational impact of China’s New Rural Pension Scheme," WIDER Working Paper Series 199, World Institute for Development Economic Research (UNU-WIDER).
    11. Jo Blanden & Stephen Machin, 2017. "Home ownership and social mobility," CentrePiece - The Magazine for Economic Performance 508, Centre for Economic Performance, LSE.
    12. von Werder, Marten, 2018. "Intergenerational transfers: How do they shape the German wealth distribution?," Discussion Papers 2018/15, Free University Berlin, School of Business & Economics.
    13. Hällsten, Martin & Pfeffer, Fabian T., 2017. "Grand advantage: family wealth and grandchildren's educational achievement in Sweden," Working Paper Series 2017:3, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    14. Driouchi, Ahmed & Gamar, Alae, 2016. "The Gap between Educational & Social Intergenerational Mobility in Arab Countries," MPRA Paper 73998, University Library of Munich, Germany.

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    More about this item

    Keywords

    Intergenerational mobility; Nature versus nurture; Portfolio allocation;
    All these keywords.

    JEL classification:

    • J00 - Labor and Demographic Economics - - General - - - General

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