Preparing Kids for Capitalism: The Effect of German Reunification on the Intergenerational Transmission of Preferences

Matthias Doepke and Mariko Klasing

No 21307, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Children and their parents resemble each other in terms of economic preferences such as patience and risk tolerance. What drives the intergenerational correlation in preferences? We build a model of preference formation that combines genetic transmission, state influence through childcare institutions, and altruistic parental socialization, where parents seek to endow children with preferences conducive to success. To assess the importance of these channels, we exploit German reunification as a natural experiment that simultaneously removed state indoctrination and transformed economic incentives. For risk tolerance-a trait with arguably high returns during a rapid transition to a market economy-parent-child correlations decline by more than a third among East German families after reunification, consistent with parents actively instilling new values in their children to prepare them for capitalism. For trust and patience, correlations rise as the state withdraws and socialization in the family looms larger. These contrasting patterns suggest that parents do not just aim to reproduce their own preferences but adapt their socialization effort to the world their children will face.

Keywords: Intergenerational preference transmission; Cultural transmission; Cultural change; German reunification; Risk tolerance; Family economics (search for similar items in EconPapers)
JEL-codes: D10 I20 J13 Z10 (search for similar items in EconPapers)
Date: 2026-03
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