A Note on the Estimation of Intergenerational Income Correlations by the Method of Averaging
13 Pages Posted: 21 Feb 2008
Date Written: January 2001
Averaging methods are routinely used in order to limit biases resulting from the mismeasurement of permanent incomes. The Solon/Zimmerman estimator regresses a single-year measurement of the child&apos's resources on a T-period average of the parents&apos' income while the Behrman/Taubman estimator regresses an S-period average of the child&apos's resources on a T-period average of the parents&apos' income. The latter estimator is shown to be the arithmetic mean of the S slope estimates arising from the Solon/Zimmerman methodology. However, because sampling variation produces yearly changes in the variance of children&apos's incomes, it is shown that the Behrman/Taubman estimator is not efficient in the class of estimators which can be expressed as a weighted sum of the S distinct Solon/Zimmerman estimates. The minimum variance estimator in the above class is thus derived and applied to a US sample.
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