Genetics for economics

In many socio-economic aspects, individuals closely resemble their relatives. Their educational attainment, occupation, and income are usually not very different from that of their parents, brothers, and sisters. The Standard Social Science Model (SSSM) postulates that this similarity is the result of culture and socialisation. However, heritability studies have provided another explanation: Many socio-economic similarities can be largely explained by genetic similarities between individuals.

In particular, the finding that intelligence and income are heritable, caused a heated scientific debate amongst economists about the purpose and value of heritability studies. Heritability studies may answer the question why individuals are different in socioeconomic aspects. They do, however, not answer the question how to modify these differences, because genes were latent, unmeasured, constructs in the heritability studies of these days. The economist Arthur S. Goldberger famously concluded in 1979: ‘Heritability analysis is just not a guide for policy, not a short-cut around the detailed cost-benefit analysis required for each specific policy proposal. On this assessment, heritability estimates serve no worthwhile purpose’. Recent breakthroughs in genetics research however, opened new ways for genoeconomics.

These breakthroughs in genetic research are the mapping of the human genome in the early years of the 21st century and the subsequent increasing availability of genetic data. Nowadays, it is relatively cheap to read out someone’s DNA using special genotyping arrays. Some longitudinal economic studies have also started collecting genetic data, which creates many new research possibilities for economists. Thus, genes are no longer latent constructs (as in models in the previous century), but measurable variables that can be used just like other variables in economic models. This makes it possible to estimate the effect of a specific genetic variant on a particular socio-economic characteristic. Moreover, genetics variants have the appealing property that they are exogenous to socio-economic outcomes, because the bases in the DNA do not change over lifetime. This property facilitates inference about the direction of causality in economic models.

It is important to note that the presence of particular genes on their own are neither necessary nor sufficient for the development of socio-economic characteristics. However, they influence the probability of certain outcomes. Environmental circumstances (and their interaction with genes) still remain important factors for explaining socio-economic differences. In order to derive useful conclusions from genoeconomic research, it is therefore not only needed to know which genetic variants are associated with which socio-economic outcome. It is also necessary to know the mechanisms between the genetic variants and the outcome. My research contributes to this new, interdisciplinary research by building models in which genes and environments jointly shape socio-economic outcomes.