Working Paper: NBER ID: w30350
Authors: Daniel Barth; Nicholas W. Papageorge; Kevin Thom; Mateo Velsquez-Giraldo
Abstract: A growing literature on gene-by-environment (G × E) interactions — much of it concerned with education and human capital — asks how policy and other environmental factors can affect inequality related to genetic factors. Economic models are typically absent from this literature, but could play a vital role in understanding how counterfactual reforms might interact with genetics to shape behavior, outcomes, and welfare. We estimate a life-cycle model of consumption and savings with portfolio decisions, allowing a measure of the genetic endowments that predict educational attainment to directly affect income, labor disutility, stock market participation costs, and returns to risky assets. Our estimates suggest that, even after accounting for completed education, childhood SES, and inheritances, genetic factors linked to educational attainment increase wealth both through life-cycle income profiles and through differences in rates of return on invested wealth. Counterfactual exercises predict how social security reforms would modify the genetic endowment-welfare gradient. Strikingly, some policies may simultaneously flatten gene-wealth gradients but increase gene-welfare inequality. Typical G × E analyses, lacking an optimizing framework, could fail to reveal this distinction. This highlights the value of economic theory in understanding the policy implications of G × E findings, particularly for counterfactual environments.
Keywords: genetic endowments; wealth accumulation; income dynamics; lifecycle model
JEL Codes: D14; D15; D31; D63; G50; H31; H55; I38; J24; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| genetic endowments (J79) | wealth accumulation (E21) |
| polygenic score for educational attainment (I24) | expected log returns from risky investments (G17) |
| genetic endowments (J79) | labor income (J39) |
| genetic endowments (J79) | financial returns (G12) |
| social security reforms (H55) | genetic endowment-welfare gradient (I14) |