A Theory of Intergenerational Mobility

We develop a model of intergenerational resource transmission that emphasizes the link between cross-sectional inequality and intergenerational mobility. By drawing on first principles of human capital theory, we derive several novel results. In particular, we show that, even in a world with perfect capital markets and without differences in innate ability, wealthy parents invest, on average, more in their offspring than poorer ones. As a result, persistence of economic status is higher at the top of the income distribution than in the middle. Successive generations of the same family may even cease to regress towards the mean. Moreover, we demonstrate that government interventions intended to ameliorate inequality may in fact lower intergenerational mobility—even when they do not directly favor the rich. Lastly, we consider how mobility is affected by changes in the marketplace. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! * We received helpful comments from Steven Davis, Edward Lazear, Casey Mulligan, Emmanuel Saez, as well as from seminar audiences at the University of Chicago and the Hoover Conference on Inequality in Memory of Gary Becker. Any errors, however, are our own. Kominers gratefully acknowledges the support of the National Science Foundation (grants CCF-1216095 and SES-1459912) and the Harvard Milton Fund.