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Preparing Kids for Capitalism: The Effect of German Reunification on the Intergenerational Transmission of Preferences

Author

Listed:
  • Doepke, Matthias

    (London School of Economics and Political Science)

  • Klasing, Mariko

    (University of Groningen)

Abstract

Children and their parents resemble each other in terms of economic preferences such as patience and risk tolerance. What drives the intergenerational correlation in preferences? We build a model of preference formation that combines genetic transmission, state influence through childcare institutions, and altruistic parental socialization, where parents seek to endow children with preferences conducive to success. To assess the importance of these channels, we exploit German reunification as a natural experiment that simultaneously removed state indoctrination and transformed economic incentives. For risk tolerance-a trait with arguably high returns during a rapid transition to a market economy-parent-child correlations decline by more than a third among East German families after reunification, consistent with parents actively instilling new values in their children to prepare them for capitalism. For trust and patience, correlations rise as the state withdraws and socialization in the family looms larger. These contrasting patterns suggest that parents do not just aim to reproduce their own preferences but adapt their socialization effort to the world their children will face.

Suggested Citation

  • Doepke, Matthias & Klasing, Mariko, 2026. "Preparing Kids for Capitalism: The Effect of German Reunification on the Intergenerational Transmission of Preferences," IZA Discussion Papers 18481, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18481
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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