Abstract
This article examines the intergenerational transmission of income risk. Do risky parents have risky kids? Income volatility—a proxy for income risk—is not observed directly; instead, it must be estimated with substantial error from the time series variability of income. I characterize an income process with individual-specific volatility parameters and estimate the joint distribution of volatility parameters for fathers and for their adult sons. In data from the Panel Study of Income Dynamics, fathers with higher income volatility have sons with higher income volatility. This finding is correlated with, but far from fully explained by, the intergenerational transmission of risk tolerance and of the propensity for self-employment.
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