Abstract
Understanding the formation of trust at the individual level is a key issue given the impact that it has been recognised to have on economic development. Theoretical work highlights the role of the transmission of values such as trust from parents to their children. Attempts to empirically measure the strength of this transmission relied so far on the cross-sectional regression of the trust of children on the contemporaneous trust of their parents. We introduce a new identification strategy which hinges on a panel of parents and their children drawn from the German Socio-Economic Panel. Our results show that: 1) a half to two thirds of the observed variability of trust is pure noise irrelevant to the transmission process; 2) this noise strongly biases the parameter estimates of the OLS regression of children's trust on parents' trust; however an instrumental variable procedure straightforwardly emerges from the analysis; 3) the dynamics of the component of trust relevant to the transmission process shed light on the structural interpretation of the parameters of this regression; 4) the strength of the flow of trust that parents pass to their children as well as of the sibling correlations due to other factors are easily summarised by the conventional R2 of a latent equation. In our sample, approximately one fourth of the variability of children's trust is inherited from their parents while two thirds are attributable to the residual sibling correlation.
Highlights
The role of culture on economic choices and its effect on economic development is the subject of a lively debate in recent research
We study the intergenerational transmission of trust using a sample of parents and children drawn from the German Socio-Economic Panel
Our key asset is the availability of longitudinal information, which is crucial to distinguish between two different ways the family might shape children’s trust: the direct transmission from parents to children and the influence exerted by a broadly defined family environment shared by siblings, such as parental influences not captured by the direct transmission of trust, as well as other local effects shared by siblings and that are independent on the parents
Summary
The role of culture on economic choices and its effect on economic development is the subject of a lively debate in recent research. Trust towards others is one of the the most studied by social scientists (see Alesina and Giuliano, 2016 for a review).. For a comprehensive review of the role of trust in economics, see Algan and Cahuc (2013).. Using data from the German SocioEconomic Panel (SOEP), Dohmen et al (2012) analyze the transmission of trust and risk attitudes from parents to children within a regression framework whereby children’s attitudes are modelled as a function of those of parents. Their results suggest the presence of a positive intergenerational correlation.
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