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

83 Pages Posted: 7 Mar 2019 Last revised: 7 May 2019

See all articles by Sandra E. Black

Sandra E. Black

University of Texas at Austin - Center for Law, Business, and Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Norwegian School of Economics (NHH) - Department of Economics

Paul J. Devereux

University College Dublin - Department of Economics; IZA Institute of Labor Economics

Petter Lundborg

Lund University School of Economics and Management; Tinbergen Institute; IZA Institute of Labor Economics

Kaveh Majlesi

Lund University; Research Institute of Industrial Economics (IFN); IZA Institute of Labor Economics

Date Written: February 2019

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.

Keywords: intergenerational mobility, Wealth Inequality

JEL Classification: J00

Suggested Citation

Black, Sandra E. and Devereux, Paul J. and Lundborg, Petter and Majlesi, Kaveh, Poor Little Rich Kids? The Role of Nature Versus Nurture in Wealth and Other Economic Outcomes and Behaviors (February 2019). CEPR Discussion Paper No. DP13559. Available at SSRN: https://ssrn.com/abstract=3346349

Sandra E. Black (Contact Author)

University of Texas at Austin - Center for Law, Business, and Economics ( email )

Austin, TX
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Paul J. Devereux

University College Dublin - Department of Economics ( email )

Dublin 4, 4
Ireland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Petter Lundborg

Lund University School of Economics and Management ( email )

P.O Box 7080
Lund
Sweden

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Kaveh Majlesi

Lund University ( email )

Box 117
Lund, SC Skane S221 00
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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